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FedEx Outpaces S&P 500 Ahead of Q2 Earnings: Will the Numbers Impress?

By:Thomas Westwater

FedEx to report second-quarter earnings tomorrow

  • FedEx to report earnings tomorrow.
  • EPS of $4.20 on $22.4 billion revenue is expected.
  • Investors are looking for healthy margins amid cost cutting.

FedEx (FDX), the global shipping giant, is set to report second-quarter fiscal earnings after the closing bell tomorrow. The stock is up nearly 10% in December and trading at the highest level since July 2021. Will the numbers boost the stock price further?

According to consensus figures from Yahoo Finance, analysts expect earnings per share (EPS) of $4.20 on $22.4 billion in revenue. That would compare to last year’s $3.18 per share on $22.8 billion in non-GAAP revenue, which ended up disappointing expectations.

Analysts have grown increasingly bullish on FedEx earnings over the last several months amid better-than-expected business and economic conditions. While freight demand is subdued, the downfall of Yellow Corp. will likely prove a tailwind for the company, which has given FedEx thousands of shipments per day over the last few months.

Efficiency changes at FedEx

Meanwhile, cost-cutting measures are in focus. The new CEO Raj Subramaniam, moved to consolidate FedEx Express, FedEx Ground, and FedEx Freight into one organization, in a move that will improve efficiencies and possibly increase operating margins to north of 10%.

The last few quarters have seen declines in shipments per day, a key measure for investors, which should slow considerably in the second quarter. A drop in fuel prices might also help the shipper to impress on its operating profit as crude oil prices fell through the quarter.

Operating expenses should fall from a year ago as the company aligns its price structure in the post-COVID-19 era. Analysts are looking for anywhere from a 3% to 5% reduction in total operating expenses. With the stock price performing nearly twice as well as the benchmark S&P 500 index—which is near all-time highs—will an impressive earnings report be enough to boost the price further? This report may spark some profit-taking if it’s anything but a stellar report.

Trading FedEx earnings

FedEx is trading with an implied volatility rank (IVR) of 41.1, and the December 22 option expiration shows an expected move of +/- 13.35.

That said, there is some opportunity to collect some premium, which could be done through an iron condor if taking a more neutral stance or selling put or call verticals for those with a directional bias. The stock is just 12% away from its all-time high of 319.90 set back in May 2021.

FDX

Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater

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