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FedEx defends gains after encouraging earnings report

The price stayed in the uptrend channel, likely moving higher in the near future amid "positive" earnings report.

The FedEx stock price traded higher on Friday, remaining in a medium-term uptrend as investors are still digesting Thursday’s earnings report.

Somewhat “optimistic” earnings

Analysts surveyed by FactSet projected FedEx EPS to fall 42% to $2.81 per share compared to the prior year. However, revenue was anticipated to increase by 0.9% to $23.702 billion.

Results: FedEx EPS decreased “only” by 34% to $3.18. This follows a 21% fall in EPS in the preceding quarter. In addition, the revenue decline of 2.9% to $22.8 billion fell short of expectations.

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According to the firm, the bigger FedEx Express division’s operating profitability decreased by 64% in Q2 owing to decreasing global volumes. However, this loss was primarily mitigated by an eight percent rise in package yields.

The smaller FedEx Ground subsidiary recorded a 24% increase in operating income. The improvement was driven by cost reduction measures and a 13% rise in yield, which were offset by a decline in package quantities.

Cost cutting continues

The corporation has identified an additional $1 billion in cost reductions. It now anticipates cost reductions of around $3.7 billion by 2023.

CEO Raj Subramaniam stated in a Q2 earnings report that FedEx managed “a lower demand environment.” Earnings in Q2 were driven by the implementation of “strong cost reduction measures,” he noted. According to the press release, the reduction in expenses helped to compensate for the decline in delivery quantities.

“As we look to the second half of our fiscal year, we are accelerating our progress on cost actions, helping to offset continued global volume softness,” said Chief Financial Officer Michael Lenz in the statement.

FedEx on Tuesday projected fiscal 2023 EPS between $13 and $14, with the midpoint below the average estimate of $13.93.

Another interesting topic: Amazon trades at COVID crash lows amid bearish sentiment

Since September, when the Memphis, Tennessee-based corporation withdrew its guidance, the stock has been under pressure, resulting in the most significant one-day price decline in its history.

FedEx increased its annual dividend by 53% to $4.60 per share in June. FDX stock now yields 2.8%.

FedEx needs to catch up to its unionized competitor United Parcel Service, which is generating more profit through its smaller, more efficient operational structure. In addition, FedEx has revealed measures to consolidate its fragmented companies, revitalize its long-struggling European operations, and satisfy activist investor D.E. Shaw.

Some analysts were pleased by the cost reductions and earnings growth. Citi analyst Christian Wetherbee, who has a neutral recommendation on the stock, stated in a research note to clients that FedEx shares will gain from the company’s substantial profits, despite lingering economic concerns. In addition, Todd Fowler of Keybank Capital, who has a sector weight rating, noted that FedEx’s valuation may give support through a potential cyclical trough in fiscal 2023.

As previously mentioned, there is a clear uptrend channel in the daily chart, suggesting further gains are ahead as long as the price trades within that channel.

Fedex daily chart

Fedex daily chart, source: author´s analysis, tradingview.com

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