- Reports Q3 2022 results on Thursday, March 17, after the close
- Revenue expectation: $23.4 billion
- EPS expectation: $4.68
When global freight and logistics giant FedEx (NYSE:FDX) reports its latest quarterly earnings tomorrow, investors will likely focus on the shipping giant's ability to protect its margins amid widespread worker shortages and rising costs.
The stock's current route lower indicates that the market isn't particularly optimistic about those prospects. Since hitting a 52-week high in late May 2021, the Memphis, Tennessee-based company has lost 30.3% of its value. It closed Tuesday at $216.23.
During that period, FedEx's rival United Parcel Service (NYSE:UPS) barely budged, primarily due to its unionized workforce with higher-than-average wages locked in until 2023.
In the meantime, FedEx struggled to meet its growing labor demand, leading to understaffing at most of its hubs. That scenario forced the company to reroute packages around several locations, adding cost and delivery time.
According to its latest earnings report, adjusted operating margins fell 7.1% during the second quarter, down from 7.4% a year earlier, as FedEx incurred extra costs of $470 million from a year ago.
On the bright side, FedEx told investors in December that those costs will subside "to some degree" in the Q3, compared to a year earlier, and then decline "significantly" in the fourth quarter, which concludes May 31.
These projections, however, may need readjustment when the company reports tomorrow, given the ongoing spike in energy prices and geopolitical crisis in Eastern Europe, which could further add to cost pressures for global companies.
Another challenge for FedEx and other shipping giants is passing on costs to consumers when the economy enters a rough patch with the chance of a recession looming.
FedEx Stock Under Pressure
Due to FedEx's uncertainties, many analysts have issued cautious notes ahead of FedEX earnings. Bernstein said the company's execution is lacking, adding in a note:
"We have rarely seen sentiment on the name this negative, and while market conditions may be peaking, the execution leaves a lot to be desired."
UBS, which reiterated FedEx as a buy, said it sees a mixed earnings report. Its note said:
"Cross currents in 3Q likely prevent FDX from delivering a strong quarter. FDX faced positives and negatives in the quarter, and we expect a mixed EPS result when they report earnings on Thursday, March 17."
Still, long-term sentiment remains optimistic, given continuing expansion of online shopping. Of 31 analysts covering FedEx for Investing.com, 23 gave it an "Outperform" rating.
Source: Investing.com
The consensus price estimate among analysts polled is $310.78—a 43.72% upside potential target from Tuesday's closing price.
Bottom Line
FedEx faces temporary cost escalations amid labor shortages and hard-to-meet growing e-commerce demand. However, macro trends favor the company's business in the long run. Given that environment, we suggest that long-term investors consider buying the stock after the current weak spell subsides.