FedEx Corporation Earnings: Will the Shipper Deliver?

On Wednesday, FedEx (FDX -2.09%) will release its quarterly report, and investors are looking for solid earnings growth from the fast-delivery specialist. An improving economy usually brings enhanced shipping volumes, but FedEx also has to deal with rival United Parcel Service (UPS -1.51%), which has arguably done a better job of latching onto the best growth opportunities in the industry. As e-commerce continues to grow and become a driving catalyst for delivery services, the big question FedEx faces is whether it can upend partnerships like UPS's deal with Amazon.com (AMZN -1.64%) and capture more than its fair share of the online-delivery market.

FedEx revolutionized the fast-delivery industry with an emphasis on air freight that changed expectations for waiting times for important packages. Yet even though economic conditions have improved, customers have gravitated toward lower-cost shipping services, and that has forced FedEx to adapt to bulk up its ground-shipping services to match up to UPS. Can FedEx keep leading the red-hot transportation sector higher? Let's take an early look at what's been happening with FedEx over the past quarter and what we're likely to see in its report.

Source: Wikimedia Commons, courtesy EyOne.

Stats on FedEx

Source: Yahoo! Finance.

Can FedEx earnings get back on track?
In recent months, investors have gotten a bit nervous about FedEx earnings, cutting estimates for the just-finished and current fiscal years by about 2%. The stock has largely been treading water, climbing 2% since mid-March.

FedEx's fiscal-third-quarter report in March made investors a bit nervous about the delivery company's future. Adverse winter weather caused earnings per share to come in flat compared to last year's figures, coming in much less than investors had expected to see and forcing FedEx to reduce its earnings guidance for the full fiscal year by about 3%-4%.

Yet FedEx has taken major steps to rein in costs and improve its profitability. Using voluntary early retirement packages to entice workers to retire should help FedEx cut compensation costs well into the future. In addition, aircraft fleet replacement has involved large upfront capital expenditures but should pay off with lower operating costs throughout their effective lifespans, as older, less fuel-efficient airplanes give way to newer models with substantial advantages in fuel consumption.

Source: Arpingstone, Wikimedia Commons.

One key for FedEx will be tapping into the huge e-commerce market. On one hand, online retailers are extremely cost-conscious about their delivery options, especially given the prevalence of free shipping deals to customers. As a result, FedEx has answered UPS with its own partnership with the U.S. Postal Service to avoid having to make its own redundant home-delivery runs. At the same time, FedEx is also looking at even courier service, meant to answer the needs of companies in their efforts to provide same-day delivery to customers who need the fastest delivery options possible.

Still, FedEx has some potential hurdles to overcome. Amazon has been testing its own in-house delivery services in major cities, aiming to cut FedEx and UPS out of the equation entirely. With the need to serve customers outside major metropolitan areas, Amazon and other e-commerce giants will still need services from FedEx and UPS well into the future. But future customer fallout from planned changes to its ground-delivery pricing models based on package dimensions could drive customers to UPS as an alternative, especially those who make bulk orders of lightweight goods from Amazon and other e-commerce retailers.

In the FedEx earnings report, look beyond the headline numbers to see how the breakout between air- and ground-based services pans out. FedEx's results could give clues not just for its own stock but also for the health of the economy as a whole.

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