Q2 Preview: FedEx (FDX) Investors Focus on Outlook as Macro Issues Loom

FedEx (NYSE: FDX) is trading lower Wednesday ahead of its expected second-quarter 2012 performance report.

Before the market opens Thursday, FedEx should report revs of $10.59 billion and earnings of $1.52 per share. Earnings would be a sharp increase from $1.16 per share reported in the same period last year.

Shares of FedEx gained 5.7 percent through the quarter, to $82.95 at the end of November. Shares are 1.6 percent lower since the end of the period, and 17 percent on the year.

Last quarter, FedEx reported cash of $6.16 and a book value of $49.42 per share. Excluding cash, FedEx is going for 9.7 times next years earnings, versus 13.5 times for rival United Parcel (NYSE: UPS).

Data from Bloomberg shows 20 analysts have a Buy rating on FedEx, 6 are at Hold, and 1 has a Sell. The price target average is $99, with a low of $75 and high of $115. FedEx has traded within a range of $64.07 to $98.66 over the last 52-week time frame.

Analyst Comments

• Deutsche Bank is modeling earnings of $1.65 per share. The firm said that there could be upside following numbers, but third-quarter estimates might be a little high. For FedEx's Ground margins, Deutsche sees expansion in the form of SmartPost growth and a solid pricing environment.
  
  Deutsche commented, "SmartPost now moves roughly 28% of total Ground packages, up from 0% in FY2006 and roughly 15-19% of volumes in FY2007-09. We believe SmartPost reduces package delivery costs considerably on B2C moves because the U.S. Postal Service provides final mile delivery."
  
  Deutsche finally thinks that FedEx express will benefit from improved aircraft capacity utilization.
  
  
• JPMorgan is expecting earnings of $1.56 per share. The firm said, "following a step down in volumes in July / August, we believe that international volumes were stable in 2QF12 which should have allowed FDX to translate cost reductions into stronger Express margin performance."
  
  For International, JPMorgan says air freight data continues to be weak in September and October, with "Hong Kong Air Cargo Terminal Limited (HACTL) showing weakness in line with the prior trend (~10- 12% y/y declines) and total IATA modestly weaker in October compared to trend."
  
  Looking ahead, JPMorgan is modeling third-quarter EPS of $1.14, versus the $1.32 consensus. The firm said Street views might be too high, and it's taking a more conservative approach to economic growth. JPMorgan also issued an interesting factoid: "From F2002–F2011, FDX’s average sequential EPS decline in F3Q was 31%, which implies 3QF12 of $1.08/share."
  
  Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release. You can also check out FedEx's past performance at Streetinsider's FedEx's Income Statement.

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