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.
Fool contributor Navjot Kaur owns no shares of any of the companies mentioned in this article. The Motley Fool owns shares of FedEx and United Parcel Service. Motley Fool newsletter services have recommended buying shares of FedEx. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.