Ahead of the Tape: No Memphis Blues for FedEx -- WSJ

By Charley Grant 

Sometimes the best defense is a good offense.

Shipping giant FedEx Corp. will test that truism on Tuesday, when it announces fiscal fourth-quarter results. Analyst consensus calls for sales of $12.7 billion and earnings per share of $3.28, according to FactSet.

Though the Memphis, Tenn., company has missed analyst earnings estimates in three of the past six quarters, tomorrow's headline results aren't likely to mark a fourth. FedEx raised the low end of its full-year earnings forecast in March.

Looking beyond this quarter, FedEx certainly faces its challenges. In the near term, economic growth remains soggy. The company lowered its calendar 2016 forecast for U.S. GDP to 2.2% in March, from 2.6%. Meanwhile, possible competition from companies such as Amazon.com looms over the long term.

So FedEx has invested aggressively in a bid to maintain its growth potential. To that end, it closed on a $4.8 billion deal for European TNT Express NV last month. The deal, the largest in the company's history, allows FedEx to significantly expand its road network in Europe. That was previously an area of geographic weakness.

Plans for TNT are thus likely to be a focus of Tuesday's investor call. FedEx has only said that the deal will be accretive to earnings by fiscal 2018. Analysts at Cowen and Company expect the TNT deal to initially be dilutive.

Still, management has forecast that European e-commerce sales will grow 15% a year, according to Cowen. Ensuring the company will be a significant player in that market should be more important to shareholders than the initial impact to earnings. After all, FedEx's ground segment, the primary beneficiary of e-commerce, now accounts for more than one-third of company sales. A decade ago, the ground business accounted for just 16% of revenue.

And despite a 9% rally in the stock price to start the year, investors still are being fairly compensated for assuming the risks embedded in the stock. FedEx shares trade at 13 times forward earnings, according to FactSet. That is slightly below its five-year average.

Growth worries aren't likely to dissipate anytime soon, but FedEx stock is still a package investors can accept.

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(END) Dow Jones Newswires

June 21, 2016 02:47 ET (06:47 GMT)

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