Friday, December 18, 2020

FedEx Delivers Robust Earnings, But Shares Decline

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News shaping
the markets today

     

What’s happening: Shares of FedEx Corp fell in extended trading on Thursday, despite the US delivery giant reporting a blowout quarter.

What happened: With various delivery companies witnessing unprecedented volumes due to the pandemic, FedEx and its peer United Parcel Service raised prices and improved their bottom line.

Despite the quarterly beat, FedEx’s stock, which has surged more than 93% year to date, moved lower in after-market trading due to an uncertain outlook.

How were the results: The Memphis-based company reported strong growth in both sales and earnings for its fiscal second quarter, with both metrics easily beating estimates.

  • Revenues grew 19% to $20.6 billion, exceeding market expectations of $19.5 billion.
  • Adjusted net income surged to $1.30 billion, or $4.83 per share, versus $660 million, or $2.51 per share, in the same quarter last year. The latest figure handsomely surpassed the consensus estimate of $4.01 per share.

Why it matters: Both FedEx and UPS play a major role in the distribution of covid-19 vaccines to various regions in the country, having entered a partnership with the Trump government’s Operation Warp Speed program. However, FedEx avoided mentioning the vaccine in its latest news release, and instead chose to focus only on the busy shopping season.

Various retailers began offering early discounts from October to avoid a rush of packages during the all-important holiday shopping season, with customers spending a record amount on online shopping this year.

Most of the company’s units delivered a strong performance during the quarter with the express division, which also provides overnight delivery services, reporting an operating profit of $943 million, up from $710 million in the fiscal first quarter.

Average daily package volume at FedEx Ground, which provides “day-certain” deliveries, surged 29% to 12.3 million in the quarter, with revenue per package rising 7% to $9.42.

Management refrained from providing any earnings forecast for the fiscal year citing an uncertain environment caused by the pandemic. FedEx CFO Michael Lenz only said that earnings could grow during the second half of the fiscal year.

How shares responded: Shares of FedEx plummeted 3.6% to $281.77 in after-hours trading following the release of quarterly results, after gaining 1.2% during the regular trading session. The stock has gained 93.3% year to date, climbing around 20% over the past three months.

What to watch: Investors expect the company to continue delivering a strong performance in the upcoming period with customers relying massively on online shopping. FedEx’s partnership with the US government for vaccine delivery is also expected to support further growth at the company

The Markets Today

     

The euro will be in focus today after having surged to its highest level since April 2018.

Context: Hopes of the UK and EU reaching a Brexit deal and US lawmakers inching closer to agree on another stimulus package helped the EUR/USD forex pair surpass the 1.2250 level on Thursday.

Details: Negotiations in the US Congress continued, centred on discussing the final details of a $900 billion covid-19 relief bill. The package is expected to receive approval by the end of the week.

Markets remained bullish about Britain and the EU sealing a deal by yearend, with European Commission President Ursula von der Leyen saying on Wednesday that both sides were inching closer to striking an agreement. The next few days will be critical in arriving at a decision on key issues.

Meanwhile, the US dollar gained some strength after the Federal Reserve announced plans on Wednesday to keep helping financial markets until the country recovers fully from the pandemic-led crisis. However, the recovery in the greenback didn’t last long and came under pressure, taking the US dollar index, which measures the currency’s performance versus a basket of major currencies, declining below the 90 level for the first time since April 2018 on Thursday.

The EUR/USD traded at 1.2266 on Thursday, notching its strongest level since April 2018. However, the Eurozone shared currency gave back some gains in the Asian session this morning, with the EUR/USD pair declining 0.15% to 1.2251.

What to watch: Traders await current account data from the Eurozone and speeches from various members of the ECB. The Eurozone’s current account surplus shrank to €33.5 billion in September, from €38.3 billion in the year-ago period.

Markets will continue keeping an eye on the ongoing Brexit talks, hoping for the two sides to reach a deal in the coming days. The rising covid-19 cases will remain a major concern for investors, with the total number of cases exceeding 74.8 million worldwide.

Other Markets: US indices closed higher on Thursday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.49%, 0.58% and 0.84%, respectively.

Support & Resistances
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market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Germany’s producer prices and Ifo business climate indicator, UK’s retail sales and CBI industrial trends orders, Spain's balance of trade, Italy’s current account and producer prices, Russia’s interest rate decision, unemployment rate, retail trade, gross domestic product and real wage growth, Mexico’s consumer spending, Brazil's current account, foreign direct investment, consumer confidence, Canada’s New housing price index, retail sales and government budget value as well as the US current account and Baker Hughes crude oil rigs.