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"We
do not believe the optimism is yet justified," Morgan Stanley
analyst Ravi Shanker wrote in a recent note.
The Memphis, Tennessee-based company has announced plans to
wring out $3.7 billion in costs this year by cutting staff,
shuttering offices, grounding airplanes, canceling
profit-sapping Sunday deliveries in far-flung areas and
furloughing workers in its freight division.
Those plans helped FedEx report better-than-expected fiscal
second-quarter results on Dec. 20, sparking a stock rally that
offset a swoon in mid-September, when the company retracted
financial forecasts issued just three months earlier and blamed
a swift pullback by customers.
Analysts are skeptical that FedEx can deliver a repeat
performance in the fiscal third quarter that ended on Feb. 28,
as demand from e-commerce and other sectors remains soft.
Shanker has set the bar lower than several of his peers. He
expects FedEx to report adjusted earnings of $2.52 per share for
the quarter - about 20 cents less than analysts' average
estimate complied by Refinitiv IBES. That would compare to
adjusted EPS of $4.59 in the year-ago quarter.
"The real questions are (1) how much dry powder remains and (2)
what is the underlying earnings power of the business," Shanker
wrote.
Analysts want more details on how FedEx plans to bring
profitability more in line with rival United Parcel Service, but
they will likely have to wait for an April 5 meeting in which
FedEx is expected to outline its next round of cost reductions.
"If FedEx can deliver two consecutive beats despite top line
headwinds, it will have some momentum heading into" that
meeting, J.P. Morgan analysts said in a note.
FedEx shares ended Tuesday's trading session at $197.89.
(Reporting by Kannaki Deka in Bengaluru and Lisa Baertlein in
Los Angeles; Editing by Bill Berkrot)
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