FedEx (NYSE: FDX) Earnings Preview: Analysts Expect Flat Growth as Stock Lags

FedEx Corporation (FDX) is set to release its next earnings report today after market close, and Wall Street is bracing for potential turbulence. The stock is currently trading around $227, down -19% year to date.

Analysts expect FedEx to report modest year-over-year growth in its upcoming earnings, with an estimated EPS of $3.62, just slightly above the $3.60 reported a year ago. Revenue is projected to reach $21.66 billion, reflecting a minimal 0.38% increase from the same quarter last year. These projections suggest a relatively flat performance, indicating that FedEx may still be navigating cost pressures and tepid demand across its logistics and delivery operations.

Several analysts have tempered their expectations for FedEx. Evercore ISI downgraded FedEx to “In Line” from “Outperform,” reducing its price target to $243 from $249. The firm cites mounting demand headwinds that pose a risk to the company's near-term earnings estimates. According to their research note, volume and revenue pressures are intensifying amid broader macroeconomic challenges, limiting potential upside for the shares in the immediate future.

Bernstein analyst David Vernon also lowered the firm's price target on FedEx to $247 from $249, maintaining a “Market Perform” rating. Vernon's revised estimates reflect an anticipated headwind stemming from the expiration of de minimis exemptions, impacting duty-free entry for certain packages.

The de minimis exemption, which previously allowed duty-free entry for packages valued under $800 from China and Hong Kong, was terminated on May 2nd. This policy shift is expected to negatively impact FedEx’s bottom line. Approximately 75% of the 1.4 billion annual packages that previously qualified are now subject to tariffs. Analysts estimate this change could cost FedEx around $170 million in the latest quarter, equating to approximately 0.8% of its revenue.

This policy change is not the only factor weighing on market sentiment. In July, FedEx reported a significant decline in freight volumes from China to the U.S., attributing it to the ongoing trade tensions. The China-U.S. route, historically the company's most profitable intercontinental lane, has been significantly affected.

The challenges facing FedEx are multi-faceted, including strategic restructuring efforts. In December 2024, FedEx announced plans to spin off its freight trucking division to focus on its core delivery business.

While the initial announcement triggered an 8% surge in FedEx's shares, adding $5 billion to its market capitalization, the long-term benefits of this move remain to be seen. FedEx Freight experienced an 11% revenue decline in the fiscal second quarter, partly due to losing cost-conscious customers after Yellow Corp's bankruptcy.

Despite these headwinds, FedEx reported better-than-expected earnings for its fiscal fourth quarter, with adjusted earnings per share (EPS) of $6.07, surpassing analyst expectations of $5.84. Revenue reached $22.22 billion, exceeding the anticipated $21.79 billion.

The company also achieved its $4 billion cost-cutting goal and announced plans to reduce an additional $1 billion in the upcoming fiscal year. However, the profit guidance for the current quarter was slightly below Wall Street expectations, leading to a 5% drop in after-hours trading at the time.

While the prevailing sentiment suggests caution, a closer look reveals potential for FedEx to outperform expectations. The company's aggressive cost-cutting measures, already yielding positive results, could provide a buffer against the negative impacts of trade policies. Further, the market may be underestimating the potential synergies and efficiencies that could arise from the spin-off of the freight trucking division.

Focusing on its core delivery business allows FedEx to streamline operations and allocate resources more effectively. Perhaps the market is overlooking the company's proven ability to adapt to changing market conditions. The recent earnings beat, despite the challenging environment, suggests a resilience that is not fully reflected in the current stock price.

The question remains whether FedEx can navigate the current challenges and deliver value to its shareholders, or if the headwinds will prove too strong to overcome.