Online Shopping Packages May Help FedEx Deliver for Investors -- Earnings Preview

By Paul Ziobro 

FedEx Corp. is scheduled to release its fiscal second-quarter earnings after the market close Tuesday. Here's what you need to know:

EARNINGS FORECAST: Analysts polled by Thomson Reuters expected FedEx to earn $2.90 a share in the quarter, excluding certain costs tied to its acquisition of TNT Express, compared with $2.58 a year ago. In September, the company raised its full-year forecast, predicting adjusted earnings of $11.85 to $12.35 for the year ending May 2017.

REVENUE FORECAST: Analysts expect 2Q revenue of $14.91 billion, compared with $12.45 billion a year earlier. The year-ago results didn't include TNT Express, which FedEx bought in May.

WHAT TO WATCH:

E-COMMERCE: FedEx will shed light on how carriers are handling a major surge in holiday volume as more people do their shopping online. FedEx and rival United Parcel Service Inc. continue to see the number of packages shipped during the holiday season rise at a double-digit rate, putting pressure on them to handle the additional load. While the extra packages bring more revenue, both companies are investing heavily to handle the capacity. Last week, Morgan Stanley analysts lowered their 2Q EPS forecast to $2.86, saying e-commerce gains will be hurt by margin pressure on FedEx's Ground business.

PRICING: FedEx executives have called on retailers to absorb more of the costs associated with building out the delivery network to support online orders. Already, FedEx is passing on more of the costs, with a 3.9% increase on FedEx Express rates and 4.9% increase on other shipping rates going into effect early next year.

TRADE: FedEx shares surged above $200, hitting an all-time high last week, as part of a postelection rally, even though Donald Trump's victory raises questions over the future of U.S. trade policy. FedEx chief Fred Smith, who met with Mr. Trump after his victory, warned earlier this month that withdrawing from trade agreements like Nafta would be "catastrophic" for the U.S. economy.

FUEL PRICES: Much of the benefit from lower fuel prices has run its course at FedEx. Lower jet fuel helps reduce costs for the FedEx Express business but the company also pulls in less revenue from fuel surcharges. Analysts at Citi expect just a 4c benefit to 2Q earnings from lower jet fuel prices, despite a 40% decrease in U.S. Gulf prices over the last nine months. In the year-earlier quarter, Citi estimates the fuel benefit was 11c a share.

Write to Paul Ziobro at [e-mail]

(END) Dow Jones Newswires

December 19, 2016 17:52 ET (22:52 GMT)

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