Parcel and cargo delivery company FedEx (NYSE:FDX) fell short of the market’s revenue expectations in Q3 CY2024 with sales flat year on year at $21.58 billion. Its non-GAAP profit of $3.60 per share was also 24.5% below analysts’ consensus estimates.
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FedEx (FDX) Q3 CY2024 Highlights:
- Revenue: $21.58 billion vs analyst estimates of $21.91 billion (1.5% miss)
- EPS (non-GAAP): $3.60 vs analyst expectations of $4.77 (24.5% miss)
- EPS (non-GAAP) guidance for the full year is $20.50 at the midpoint, missing analyst estimates by 2.1%
- Gross Margin (GAAP): 29.1%, up from 26.9% in the same quarter last year
- EBITDA Margin: 10%, down from 12.3% in the same quarter last year
- Free Cash Flow Margin: 1.9%, similar to the same quarter last year
- Market Capitalization: $73.04 billion
Infamously taking its last $5,000 to a Las Vegas blackjack table to keep the company afloat, FedEx (NYSE:FDX) is a provider of parcel and cargo delivery services
Air Freight and Logistics
The growth of e-commerce and global trade continues to drive demand for expedited shipping services, presenting opportunities for air freight companies. The industry continues to invest in advanced technologies such as automated sorting systems and real-time tracking solutions to enhance operational efficiency. Despite the advantages of speed and global reach, air freight and logistics companies are still at the whim of economic cycles. Consumer spending, for example, can greatly impact the demand for these companies’ offerings while fuel costs can influence profit margins.
Sales Growth
Reviewing a company’s long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one tends to sustain growth for years. Unfortunately, FedEx’s 4.7% annualized revenue growth over the last five years was tepid. This shows it failed to expand in any major way and is a rough starting point for our analysis. 
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. FedEx’s history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 3.9% annually. FedEx isn’t alone in its struggles as the Air Freight and Logistics industry experienced a cyclical downturn, with many similar businesses seeing lower sales at this time.
This quarter, FedEx missed Wall Street’s estimates and reported a rather uninspiring 0.5% year-on-year revenue decline, generating $21.58 billion of revenue. Looking ahead, Wall Street expects sales to grow 3.8% over the next 12 months, an acceleration versus the last two years.
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Operating Margin
Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
FedEx was profitable over the last five years but held back by its large cost base. Its average operating margin of 5.8% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.
On the bright side, FedEx’s annual operating margin rose by 1.6 percentage points over the last five years.
This quarter, FedEx generated an operating profit margin of 5%, down 1.8 percentage points year on year. Conversely, the company’s gross margin actually rose, so we can assume its recent inefficiencies were driven by increased operating expenses like sales, marketing, R&D, and administrative overhead.
EPS
We track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth was profitable.
FedEx’s EPS grew at a weak 2.1% compounded annual growth rate over the last five years, lower than its 4.7% annualized revenue growth. However, its operating margin actually expanded during this timeframe, telling us non-fundamental factors affected its ultimate earnings.
Like with revenue, we analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For FedEx, its two-year annual EPS declines of 7.6% show its recent history was to blame for its underperformance over the last five years. These results were bad no matter how you slice the data.
In Q3, FedEx reported EPS at $3.60, down from $4.55 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects FedEx’s full-year EPS of $16.87 to grow by 28.4%.
Key Takeaways from FedEx’s Q3 Results
We struggled to find many strong positives in these results. Its EPS missed and its revenue fell short of Wall Street’s estimates. The outlook was also underwhelming, with full-year EPS guidance coming in below expectations. Overall, this was a mediocre quarter. The stock traded down 9.1% to $273.20 immediately after reporting.
FedEx’s earnings report left more to be desired. Let’s look forward to see if this quarter has created an opportunity to buy the stock. We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy.We cover that in our actionable full research report which you can read here, it’s free.