FedEx (FDX) reported strong fiscal third-quarter earnings growth Thursday thanks to improving yields, record holiday package shipping and solid performance at FedEx Ground. Though we liked the quarter, its outlook was disappointing. Though we plan to revisit our valuation of the firm, we’re sticking with our fair value estimate for the package deliverer.
In its third quarter, FedEx’s revenue advanced 9%, while operating income more than doubled thanks to a 3.6 percentage point increase in the firm’s operating margin. In its Express segment, US domestic revenue per package grew 9%, while average daily volume declined 4% from the same period a year ago. However, its Express segment did much better, with revenue jumping 14%, as average daily package volume increased 5% with the balance coming mostly from pricing. Revenue in its Freight segment advanced 10% thanks primarily to strong pricing as well. Net income also more than doubled, to $521 million in the period.
However, FedEx disappointed with respect to its outlook. The firm projects earnings to come in the range of $1.75 to $2.00 per share in its fiscal fourth quarter (consensus was at the high end of the range, at $1.98 per share). With the mid-point of the guidance range coming in much lower than consensus, we’re viewing this as a noteworthy disappointment. We’ll also be updating subscribers of the package deliverer’s views on the global economy after touching base with the company.