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Is FedEx a Buy Despite Its Earnings Miss?

By Daniel Foelber – Sep 24, 2021 at 9:55AM

Key Points

  • FedEx delivered fiscal 2022 Q1 earnings that missed expectations.
  • Lower full-year guidance and persisting headwinds pose a risk to its business.
  • FedEx retains its strong fundamentals, a bright future, and an inexpensive valuation.

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This value stock has its headwinds but it's simply too cheap to ignore.

Package delivery kingpin FedEx (FDX 2.73%) reported its first-quarter fiscal year 2022 earnings on Tuesday, notching $22 billion in revenue and $4.37 in diluted earnings per share. Average analyst estimates called for $21.9 billion in revenue and $5 in diluted EPS. FedEx's stock price proceeded to tumble around 9% on Wednesday, turning the company's year-to-date performance from positive to negative. 

FedEx may have missed expectations, but its results are still excellent when viewed in the context of a multi-year period. Let's take a look at its business to determine if the stock is a buy now.

Two ladies smile while working in a warehouse.

Image source: Getty Images.

FedEx saw slowing growth

FedEx stock is down over 15% in the last three months, and a big reason for that is slowing growth. FedEx had a monster FY 2021, growing revenue by 20% as it successfully tapped into higher package delivery demand. It was a record year by package volume, revenue, and net income.

The issue is that FedEx is now guiding for just $19.75 to $21 in EPS before adjustments compared to its earlier forecast of $20.50 to $21.50 in non-adjusted EPS. The midpoint of its new earnings guidance would represent a mere 5% increase in non-adjusted EPS compared to FY 2021. Revenue is estimated to increase around just 7% year over year. In short, FedEx's growth is cooling off.

Business challenges are ahead for FedEx

FedEx increased revenue by 14% compared to the same quarter last year, but its operating margin fell to just 6.8%.


Q1 FY22

Q1 FY21



$22 billion

$19.3 billion


Operating income

$1.4 billion

$1.6 billion


Operating margin



(1.7 percentage points)

Capital expenditures

$1.6 billion

$1.4 billion


Net income

$1.2 billion

$1.3 billion


Diluted EPS




Note: All figures are adjusted non-GAAP data. Data source: FedEx.

Higher spending and lower profitability were due to higher labor costs and supply chain constraints. FedEx reduced its guidance from prior estimates because it thinks these challenges could persist longer than previously expected. "While we expect these conditions to continue near term, we expect a gradual improvement in labor availability combined with our proactive revenue management actions to mitigate the ongoing impact of these headwinds on our results and position us for earnings growth in fiscal 2022," said FedEx CFO Michael Lenz. 

FedEx's near-term challenge will be hiring enough people to satisfy the holiday quarter. The company expects to hire for 90,000 positions ahead of the peak season, which could be easier said than done given the labor shortage across its business lines. 

Making the best of the situation

FedEx can't control the ebbs and flows of the broader economy. Sometimes, these factors work in its favor -- like the pandemic-induced tailwind of higher package deliveries. Right now, these factors are mostly working against FedEx. However, the company deserves credit for what it can control.

FedEx remains on track to continue expanding routes, delivery capacity, and its ability to satisfy heightened e-commerce demand. It grew year-over-year revenue in all three of its segments, earned more revenue per package, and increased total packages delivered. 

To offset higher costs, FedEx is raising shipping rates for FedEx Express, FedEx Ground, and FedEx Home Delivery by an average of 5.9% effective Jan. 3, 2022. It's also increasing FedEx Freight rates by between 5.9% and 7.9%. It remains to be seen how customers will respond to these steep price bumps. If they are received well, then FedEx could enjoy a two-pronged benefit from higher prices and lower costs as the macro situation improves, resulting in what could be much higher margins in the future.

What this means for FedEx investors

FedEx stock remains a buy despite its earnings miss because the company is well-positioned to stay an industry leader, grow its business, and benefit from the surging e-commerce industry. The company is in for a challenging holiday season, and it wouldn't be surprising to see its margins take another hit in the coming quarters.

Fiscal year 2022 could prove to be a weak year if FedEx continues to face higher costs and compressed margins -- which would look particularly bad compared to FY 2021's banner performance. However, FedEx is a value stock that is simply too cheap to ignore. Even if it hits the low end of its reduced guidance, the company would have a forward price-to-earnings ratio of just 11.7 -- placing it in bargain bin territory. 

Considering FedEx's challenges are mostly macro and the business itself is firing on all cylinders, FedEx looks like a great industrial stock to buy now.

Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends FedEx. The Motley Fool has a disclosure policy.

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