So
far, FedEx (NYSE: FDX) stock has declined by 14% in 2020. In March, the
logistics company withdrew its fiscal 2020 guidance due to uncertainty amid the
COVID-19 pandemic. United Parcel Service (NYSE: UPS) stock has fallen by 8.3%
as of June 26. A slowdown in global business activity due to the outbreak hurt
the demand for shipping services.
FedEx
will likely announce its fourth-quarter results after the financial markets
close on June 30. The revenue and earnings could fall due to the impact of
COVID-19.
Estimate for Fedex’s Q4 results:
FedEx
beat analysts’ revenue expectations for the third quarter of fiscal 2020, which
ended on February 29. The company’s third-quarter revenue rose 2.8% YoY
(year-over-year) to $17.49 billion. Analysts expected revenue of $16.89
billion. The increased revenue from the FedEx Ground segment was offset by lower
FedEx Express and FedEx Services revenues.
The
company’s third-quarter adjusted EPS declined over 53% to $1.41, which was in
line with Wall Street’s expectations. The impact of higher revenue was more
than offset by a significant decline in the company’s margins. A continued
shift to lower-yielding services, an intensely competitive pricing environment,
and costs to expand services hurt the margins.
Analysts
expect the impact of COVID-19 to be more profound on FedEx’s fourth-quarter
results. They expect the company’s adjusted EPS to fall about 69% YoY to $1.57.
Wall Street expects a 7.8% fall in the fourth-quarter revenue to $16.42 billion
to hurt the bottom line. Also, a rise in revenue from lower-margin businesses
and COVID-19 related costs could lower FedEx’s profitability.
Business dynamics amid COVID-19:
Slowing
economies across the globe continue to hurt FedEx’s Express business. The
company ended its Express US shipping contract with Amazon (NASDAQ: AMZN) in
June 2019. The company also suspended its ground delivery contract with Amazon
in August 2019. Amazon has become one of FedEx and UPS’s rivals by enhancing
its delivery network.
To
increase efficiency amid the changing dynamics due to COVID-19, the company
decided to combine its Express and Ground business capabilities. FedEx’s
decision to combine the fulfillment capabilities was essentially made to
support the rise in e-commerce services. Several companies have seen a spike in
their e-commerce businesses. Customers have been following social-distancing
norms. FedEx has been enhancing its fulfillment capacity to support the rise in
e-commerce services amid the pandemic.
However,
higher e-commerce investments will likely hurt the company’s margins. Recently,
FedEx announced an alliance with BigCommerce to support small and medium
businesses’ e-commerce sales amid COVID-19. In May, FedEx announced a multiyear
partnership with Microsoft (NASDAQ: MSFT). The collaboration would focus on
combining Fedex’s digital and logistics network with Microsoft’s cloud
platform.
Several
analysts believe in FedEx’s long-term prospects. However, other analysts worry
about how the economic slowdown, declining margins, and growing competition
could impact the company. Currently, 14 out of 28 analysts recommend a “buy,”
13 recommend a “hold,” and one analyst recommends a “sell.”
With
a 12-month average target price of $149, Wall Street sees a 14% upside in the
stock. The company’s business update and outlook for fiscal 2020 will likely
influence its stock price movement. However, rising COVID-19 cases and
macro-economic challenges might impact FedEx. Right now, the outlook for the
high-margin business-to-business Express shipments looks bleak.
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