The 1 Number FedEx Investors Need to Follow

FedEx (NYSE: FDX) delivered a set of fiscal fourth-quarter earnings on Tuesday that exceeded analysts’ expectations, and that should be enough to take the stock higher in the near term. The delivery services giant’s earnings are still being negatively impacted by the COVID-19 pandemic, but there are some signs of underlying improvement in its business overall. It was a somewhat complicated report, so let’s take a closer look at what it reveals about the company, and focus in on the key metric that investors need to be watching from here.

A quarter of ups and downs

Investors could be forgiven for being confused by the headline numbers from the report for fiscal Q4, which ended May 31. After all, FedEx’s overall revenue was only down 3% year over year, but operating income was down a whopping 64%. However, the numbers need to be put into context.

n a nutshell, revenue weakness in FedEx’s more cyclical express and freight segments was offset by a pandemic-driven surge in business-to-consumer (B2C) e-commerce shipping, which powered growth in its ground segment. The problem is that B2C deliveries tend to be lower margin. As the table below reflects, ground’s 20% revenue increase actually led to a 17% decline in operating income in the segment.

Express$8.560 billion(10%)$338 million(56%)
Ground$6.394 billion20%$673 million(17%)
Freight$1.615 billion(17%)$132 million(32%)
Corporate, eliminations and other*$782 million(24%)($668 million)46%
Total$16.569 billion(3%)$475 million(64%)
Data source: FedEx presentations. YOY= year over year. *includes acquisition integration expenses and impairment changes. 

Source: Nasdaq (2020)

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