Why FedEx Corporation (NYSE: FDX) stock is under pressure

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FedEx Corporation (NYSE: FDX) stock fell over 6.4% on December 18th, 2019 pre market session (Source: Google finance) after the company posted lower than expected results for the second quarter of FY 20. Second quarter has seen significant effects on the industrial economy on the back of continuing trade disputes, including reductions in international air freight and subdued at best B2B domestic parcel and freight shipping. The second quarter just ended is an anomaly due to the compressed shipping season before Christmas, necessitating a significant bow wave of expenses and volumes that will significantly fall in the third fiscal quarter. Meanwhile, the company is aggressively expanding North American packages services for the rapidly growing e-commerce market to include year-round seven-day delivery, in sourcing most SmartPost volumes formally given to the postal service, standing up more dedicated ground large package facilities, given the remarkable growth in demand for the delivery of oversize items and new unique short-haul services. The second area of strategic change is in FedEx Express international operations to include the completion of European ground interoperability in the fourth quarter of fiscal year ’20. Also, the company will be taking down the intercontinental capacity right after Christmas. The company has numerous other programs under way in FedEx Freight, FedEx Logistics and FedEx Office.

Meanwhile, the company is permanently retiring the fleet of 10 A-310s. The reduction in flight hours would allow the company to temporarily park 14 aircraft by the end of fiscal year 2020. The company also plans to permanently retire another 29 aircraft over the next 30 months. FedEx Express has booked the asset impairment charges of $66 million related to the permanent retirement of 10 Airbus A310-300 aircraft and 12 related engines. The Company continues to evaluate if additional aircraft retirements are warranted.

FDX in the second quarter of FY 20 has reported the adjusted earnings per share of $2.51, missing the analysts’ estimates for the adjusted earnings per share of $2.79, according to Zacks Consensus Estimate. The company had reported 2.8 percent fall in the adjusted revenue to $17.32 billion in the second quarter of FY 20, missing the analysts’ estimates for revenue of $17.82 billion.

For fiscal 2020, the company is now forecasting adjusted earnings per share to be in the range of $10.25 to $11.50. The revised guidance is based on lower than expected revenue in each transportation segment and higher than expected expenses due to the continued mix shift to residential services

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