FedEx Mixed Bag Of Results, Outlook May Leave Investors 'Somewhat Confused'

Shares of FedEx Corporation (NYSE: FDX) are expected to open lower on Wednesday after a mixed bag of results and outlook. In the after-hours hours trading on Tuesday, they were down 1 percent.

Mixed Results

The global package delivery company's fourth-quarter adjusted EPS and sales topped the Street's view, as more consumers shopped online. But, the mid-point of its fiscal 2017 adjusted earnings forecast of $11.75 and $12.25 per share fell short of the consensus' $12.17 per share.

FedEx reported a fourth-quarter loss, which included a pension accounting adjustment and costs related to its acquisition of the Dutch package delivery company TNT (TNT Express NV - ADR (OTC: TNTEY)).

"[I]nvestors are likely to walk away somewhat confused about what to expect in the coming 12 months," Citi analyst Christian Wetherbee wrote in a note.

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The company excluded TNT operations and integration expenses from the guidance and "all FedEx offered was a reiteration that the deal will be accretive in FY18." Wetherbee expressed his "disappointment" over the lack of detail since the deal was announced over a year ago, but the analyst sees some value there.

Looking Forward

"Based on management commentary, we expect consensus earnings to come down, creating an achievable set up fundamentally for the segments and TNT expectations are essentially zero," Wetherbee noted.

"We wouldn't be surprised to see shares initially soft on the results/guide, but we'd expect better performance as the narrative shifts toward executing on TNT and beating lower hurdles, all with a tailwind from ecommerce," the analyst added.

Wetherbee noted that FedEx' F2017 capex target of $5.1 billion, with the potential for another $100 million from TNT integration capex, will create somewhat of a margin drag to Ground segment. That said, the analyst expects EBIT likely to grow in the MSD-HSD range given volume opportunities.

Citi reiterated its Buy rating and $200 price target saying, "So while spending is above trend, it's for growth and margin and ultimately greater earnings power."

Meanwhile, Wetherbee adjusted his fiscal 2017 EPS estimate to $12.12, in the higher end of the $11.75–$12.25 range ex-TNT.

Shares of FedEx closed Tuesday's regular trading session at $163.95.