Even though it topped estimates in its first-quarter report, FedEx
Did the market overreact? Let’s dig deeper.
Weak global health
FedEx posted revenue of $10.52 billion for the quarter, up 11% from a year ago. Earnings per share rose 22% to $1.46, beating market expectations by a penny. The company benefited from better pricing, though it saw a decline in volumes.
The sluggish global economy has been hurting FedEx and rival United Parcel Service
FedEx is already suffering from declining demand and volume in the U.S. and Asia, partly because of consumers' reduced preference for electronic products and other gadgets, especially from China. The sorrow doesn’t end here, either. The company's operating expenditure grew to $9.78 billion, an 11% increase over last year, mainly because of a whopping 40% year-on-year increase in fuel costs. So far, FedEx has managed to offset these problems by raising prices.
However, because of slow global growth, customers are shifting to slower shipping -- and therefore cheaper -- options like ground shipping, rather than more costly overnight express services. This trend may help explain the 3% fall in daily average package volume in FedEx Express and a 5% increase in FedEx Ground.
An overall increase in revenue per package helped the company remain solidly profitable. Revenues grew prominently across all areas of the business.
The Foolish bottom line
Though the slow-moving economy is not favorable to FedEx, it still has the potential to grow reasonably well. This dividend-paying company has done a good job with its pricing strategy and is trading cheap because of the global economic uncertainty. To watch the impact of other macroeconomic changes on FedEx, add it to your Watchlist.