FedEx profit report to test company turnaround

By Kannaki Deka and Lisa Baertlein

(Reuters) – Analysts expect FedEx Corp to post a sharp drop in quarterly profit on Thursday as demand retreats to prepandemic levels, and are asking whether the global delivery firms recent cost-cutting moves justify its 20% share gain since mid-December.

“We do not believe the optimism is yet justified,” Morgan Stanley analyst Ravi Shanker wrote in a recent note.

The Memphis, Tennessee-based company has announced plans to wring out $3.7 billion in costs this year by cutting staff, shuttering offices, grounding airplanes, canceling profit-sapping Sunday deliveries in far-flung areas and furloughing workers in its freight division.

Those plans helped FedEx report better-than-expected fiscal second-quarter results on Dec. 20, sparking a stock rally that offset a swoon in mid-September, when the company retracted financial forecasts issued just three months earlier and blamed a swift pullback by customers.

Analysts are skeptical that FedEx can deliver a repeat performance in the fiscal third quarter that ended on Feb. 28, as demand from e-commerce and other sectors remains soft.

Shanker has set the bar lower than several of his peers. He expects FedEx to report adjusted earnings of $2.52 per share for the quarter – about 20 cents less than analysts average estimate complied by Refinitiv IBES. That would compare to adjusted EPS of $4.59 in the year-ago quarter.

“The real questions are (1) how much dry powder remains and (2) what is the underlying earnings power of the business,” Shanker wrote.

Analysts want more details on how FedEx plans to bring profitability more in line with rival United Parcel Service, but they will likely have to wait for an April 5 meeting in which FedEx is expected to outline its next round of cost reductions.

“If FedEx can deliver two consecutive beats despite top line headwinds, it will have some momentum heading into” that meeting, J.P. Morgan analysts said in a note.

FedEx shares ended Tuesdays trading session at $197.89.

(Reporting by Kannaki Deka in Bengaluru and Lisa Baertlein in Los Angeles; Editing by Bill Berkrot)