17 March 2020

Will FedEx Deliver Bad News Today?

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What’s happening: FedEx is scheduled to report its fourth-quarter results after the closing bell on Tuesday, March 17.

What happened: FedEx has recently been facing severe issues ranging from the US-China trade war to weakness in global industrial activity. If these issues were not enough, the company is now reeling under the coronavirus pressure. Negative investor sentiment has resulted in a sharp decline in the stock, which has exceeded the losses of the two major indices that FedEx is a constituent of, namely the Dow and S&P 500. All estimates for earnings and revenue have also been revised downwards over the past three months.

  • The consensus revenue estimate stands at $16.92 billion, representing a 0.5% decline from the fourth quarter in the previous year.
  • The estimate for earnings is $1.49 per share, down 50.8% from the same quarter last year.

Why it matters: FedEx is considered a bellwether for the US economy and closely reflects the overall health of global trade. When worldwide supply and demand are strong, FedEx benefits because of a rise in shipments.

In an update earlier this month, the delivery services behemoth said that the coronavirus outbreak and geopolitical issues had affected the global economy. Manufacturing productivity had weakened, leading to a decline in business traffic. FedEx projected global GDP and US GDP growth for 2020 at 2.3% and 1.7%, respectively, down from its January prediction of 2.5% and 1.8%, respectively.

FedEx said, “Business sentiment had been hampered by uncertainty around trade policy and is now being further suppressed by the COVID-19 outbreak.” The company could come under more pressure, with expectations of a massive decline in China-US business.

Cost-cutting initiatives at FedEx Express and investments at FedEx Ground were expected to drive the company’s performance this quarter and help the stock recover from its recent downtrend. However, the coronavirus outbreak has shattered confidence at Wall Street. The company’s earnings report will cover the quarter ended February 28, reflecting the impact of coronavirus on China and its spread to the rest of the world.

How the shares have performed so far: Shares of FedEx have been on a steep downtrend. The stock has declined by around 22% over the past five trading days and by about 45% over the last three months. The company’s shares shed 16% in yesterday’s session.

What to watch: FedEx is under huge pressure to beat estimates this quarter, considering the recent slump in its shares. The market will watch the Dow and S&P 500, where FedEx is a major constituent. Management has so far remained silent about the impact of coronavirus on the company’s business in the next quarter and investors expect some details around this during the conference call scheduled for later today.

On a positive note, FedEx Express has plans to collaborate with FedEx Ground for certain shipments. This could lead to significant cost saving opportunities for the company.

The Markets Today

     

US stocks will be in focus today, with the Dow suffering its worst decline since the 1987 Black Monday crash yesterday.

Context: US stocks plummeted on Monday, despite the Federal Reserve announcing a massive stimulus plan and cutting interest rates to almost zero to help support the economy amid the COVID-19 outbreak.

Details: The Dow surpassed its 9.99% drop last Thursday by falling 12.9% on Monday. Investor sentiment remained negative despite the Federal Reserve’s efforts to support the economy. In a surprise move on Sunday, the Fed cut its benchmark rate to almost zero to curb the economic slowdown. This followed the central bank’s emergency rate cut earlier this month.

The Fed also announced a $700 billion quantitative easing program that entailed asset purchases of Treasury and mortgage-backed securities. The markets remained unimpressed by these plans and chose to focus on President Donald Trump’s comments around coronavirus crisis extending through August.

Monday’s decline put the Dow 31.7% lower than its record high last month. The Dow also reached its lowest level since 2017. Trading in the market was halted shortly after the opening bell for 15 minutes following an 8% decline in the S&P 500 index.

The Dow plunged 12.93% to settle at 20,188 on Monday, while the S&P 500 fell 11.98% to 2,386. The Nasdaq 100 nosedived 12.32% to close at 6,904.

Coronavirus cases in the US have exceeded 3,700, with 69 deaths. The CDC (Centers for Disease Control and Prevention) has requested the canceling or postponing of events with gathering of more than 50 persons.

Banking stocks took a hit on Monday, with shares of Bank of America, Morgan Stanley, Citigroup and JPMorgan Chase all tumbling more than 14% each. Apple’s stock was down 13%. Airline stocks recovered slightly from their lows, after President Trump assured the market that the government would backstop the airlines.

Goldman Sachs downgraded its US GDP forecast to 0% growth in the first quarter and to a contraction of 5% in the second quarter. Its GDP forecast for the year was lowered from 1.2% to 0.4%.

What to watch: Investors will be watching the major US indices very closely today, as there could be a small recovery after Monday’s sharp slump. US stock futures also point towards a higher open this morning.

Investors await some positive economic reports from the country, including industrial production, retail sales, business inventories, job openings and housing market index. US retail sales, which rose 0.3% in January, are expected to rise 0.2% in February. Industrial production is likely to increase 0.4% in February, versus a 0.3% decline in January. The number of job openings, which fell by 364,000 to 6.423 million in December, is expected to increase to 6.476 million in January. The NAHB housing market index is projected to fall to 73 in March, versus a prior reading of 74. Business inventories are expected to fall 0.1% in January.

Other Markets: European indices were trading lower at 10:10am GMT, with the FTSE 100, German 30 and French 40 down by 1.16%, 1.20% and 0.73%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

News shaping
the markets today

     

What else to watch today

     

Canada’s foreign stock investment and manufacturing sales, Russia's industrial production as well as the US Redbook index.

 

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