FedEx Corporation Earnings and the Coronavirus and Fed Effect!

More Panic – But More Profit With Options Trading!
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by Ian Harvey
March 16, 2020


FedEx Corporation will report earnings after the market closes on Tuesday, March 17, 2020. The consensus earnings estimate is $1.69 per share on revenue of $17.19 billion; but the Whisper number is a bit less at $1.67 per share.

Coronavirus, Fed rate cuts, global disruption and panic, as well as several other factors could see FedEx fall below the $100 mark!

See how we are profiting from this situation!

FedEx Corporation (NYSE:FDX)

Markets are in for another roller-coaster week, and FedEx will be no exception, as policymakers continue to ramp up their responses to the global coronavirus outbreak.

Stock futures opened sharply lower Sunday evening, even after the Federal Reserve launched a massive monetary stimulus program — including cutting rates to effectively zero and unveiling plans for large-scale asset purchases.

Specifically, the Fed slashed benchmark interest rates by 75 basis points to a band of between 0% and 0.25%.

Global stock markets continue to slide!

Fed Chairman Jerome Powell called the actions "strong measures" but the emergency rate cut — the second in two weeks and an unusually large one-percentage-point cut, at that — seemed to unnerve investors.

Stock-market futures indicated the Dow Jones Industrial Average would plunge more than 1,000 points, of 4-and-a-half percent —and the S&P 500 would fall by 5%, when stocks begin trading in the U.S. on Monday morning. Those futures began dropping almost immediately after the Fed announced the rate cut on Sunday.

"The Fed's latest move does not change our expectation that the economy will slow dramatically in the near term," Rubeela Farooqi, chief U.S. economist with High Frequency Economics, told investors in a report after the Fed's rate cut.

The Expected Earnings Report.....

FedEx Corporation (NYSE:FDX) - a leading player in the field of global express delivery services – will report earnings after the market closes on Tuesday, March 17, 2020. The consensus earnings estimate is $1.69 per share on revenue of $17.19 billion; but the Whisper number is a bit less at $1.67 per share.

Consensus estimates are for earnings to decline year-over-year by 44.22% with revenue increasing by 1.06%.

In the last reported quarter, the company witnessed a negative earnings surprise of 10%. Quarterly revenues also lagged the Consensus Estimate. Also, both the top line and the bottom line declined year over year. Sluggishness in the global economy and elevated costs affected the company’s results.

The fundamental issues with FedEx Corporation have been attributed to the trade war and the loss of business from Amazon (NASDAQ:AMZN). The two companies had a business disagreement and Amazon no longer uses FedEx for shipping products. The first phase of the trade agreement has been signed and maybe that will help FedEx Corporation down the road, but the ink on that agreement hadn’t even dried when the coronavirus outbreak hit China. Now, the virus has been labeled a pandemic by the World Health Organization and it continues to spread across the globe.

FedEx has been falling for over two years now and is down over 60%.


Influencing factors.....

Short interest has increased by 16.0% and overall earnings estimates have been revised lower since the company's last earnings release.

The coronavirus outbreak in China is a setback especially because the company has significant exposure in the country.  FedEx Corporation expects shipment delays due to travel restrictions following the virus outbreak, which will likely hurt its operational performance.

 The coronavirus is a concern for FedEx Corporation as it should see a sharp China-U.S. volume decline, said UBS analyst Thomas Wadewitz, but FedEx “is far from unique on this risk.”

"Given the likely pressure on near-term results ... for many industrials and other companies, we believe the market could look through the impact from coronavirus risk in the near term," he said in a note. "A longer lasting impact from coronavirus on global and US economic activity would be a relatively greater risk to our positive view on (FedEx)."

The company has a below-par track record with respect to earnings per share, beating the Consensus Estimate in three of the last four quarters. It reported better-than-expected earnings per share in the other quarter.  FedEx has trailing four-quarter negative earnings surprise of 2.98%, on average.

The dismal earnings performance was primarily caused by the slowdown in global economy, following the United States-China trade tensions, which has eased somewhat after the Phase 1 trade deal was signed in January. Due to the trade tensions, FedEx‘s primary revenue-generating segment, FedEx Express, performed dismally in the last few quarters, which will affect overall results.

As in the last two quarters, FedEx’s primary revenue generating segment – FedEx Express – is likely to have witnessed some softness in revenues due to removal of the Amazon contract (for providing the company with domestic express delivery services) on Jun 30.

FedEx slashed its fiscal 2020 earnings outlook in Dec 2019, due to expectations of lower revenues at each of the transportation segments and elevated costs stemming from expansion of the seven-day delivery service in the Ground unit.

Also, with FedEx investing significantly in facility upgrades, capital expenses have increased. Also, integration expenses pertaining to TNT Express are adding up costs. This is expected to hurt the bottom line going forward.

FedEx said in its March economic update that the outbreak, along with trade negotiations and “geopolitical tensions,” are risks to the global economy. Manufacturing output has slowed, leading to reduced business traffic.

“Business sentiment had been hampered by uncertainty around trade policy and is now being further suppressed by the COVID-19 outbreak,” FedEx said.

In January, FedEx expected global GDP and U.S. GDP to increase by 2.5% and 1.8%, respectively, in 2020. Those estimates dropped to 2.3% and 1.7% in the company’s March update.

The sentiment for FedEx has shifted considerably since last March. At this time, there are 27 analysts covering the stock with 14 “buy” ratings and 13 “hold” ratings. A year ago, there were 28 analysts covering the stock with 24 “buy” ratings and four “hold” ratings.



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An Important Note: That any suggestions for options trade considerations require investors/traders to use their own discretion as to when to enter or exit! As well, it is advisable to do further research and due diligence before executing your trade.

It is sometimes best to exit a trade, if there is already sufficient profit accrued, before an earnings report is presented. GREED can be the undoing of a nice profit!

Best of Trading,
Ian Harvey
Director of Stock Options Made Easy


”Success is simple. Do what's right, the right way, at the right time.”

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