FedEx’s (NYSE:FDX) Q1 Sales Beat Estimates But Stock Drops
March 20, 2025
Parcel and cargo delivery company FedEx (NYSE:FDX) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, with sales up 1.9% year on year to $22.16 billion. Its non-GAAP profit of $4.51 per share was 2.6% below analysts’ consensus estimates.
Sporting one of the largest air cargo fleets in the world, FedEx (NYSE:FDX) is a global provider of parcel and cargo delivery services.
Air Freight and Logistics
The growth of e-commerce and global trade continues to drive demand for expedited shipping services, presenting opportunities for air freight companies. The industry continues to invest in advanced technologies such as automated sorting systems and real-time tracking solutions to enhance operational efficiency. Despite the advantages of speed and global reach, air freight and logistics companies are still at the whim of economic cycles. Consumer spending, for example, can greatly impact the demand for these companies’ offerings while fuel costs can influence profit margins.
Sales Growth
A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, FedEx’s sales grew at a tepid 4.7% compounded annual growth rate over the last five years. This was below our standard for the industrials sector and is a poor baseline for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. FedEx’s history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 2.6% annually. FedEx isn’t alone in its struggles as the Air Freight and Logistics industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time.
This quarter, FedEx reported modest year-on-year revenue growth of 1.9% but beat Wall Street’s estimates by 0.9%.
Looking ahead, sell-side analysts expect revenue to grow 2.5% over the next 12 months. While this projection implies its newer products and services will spur better top-line performance, it is still below average for the sector.
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Operating Margin
FedEx was profitable over the last five years but held back by its large cost base. Its average operating margin of 6% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.
Looking at the trend in its profitability, FedEx’s operating margin might fluctuated slightly but has generally stayed the same over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.
In Q1, FedEx generated an operating profit margin of 5.8%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.
Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
FedEx’s EPS grew at an unimpressive 7.8% compounded annual growth rate over the last five years. This performance was better than its flat revenue but doesn’t tell us much about its business quality because its operating margin didn’t expand.
We can take a deeper look into FedEx’s earnings to better understand the drivers of its performance. A five-year view shows that FedEx has repurchased its stock, shrinking its share count by 7.6%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost
per
share earnings.
Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.
For FedEx, its two-year annual EPS growth of 1.9% was lower than its five-year trend. We hope its growth can accelerate in the future.
In Q1, FedEx reported EPS at $4.51, up from $3.86 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates. Over the next 12 months, Wall Street expects FedEx’s full-year EPS of $17.59 to grow 23.5%.
Key Takeaways from FedEx’s Q1 Results
It was good to see FedEx narrowly top analysts’ revenue expectations this quarter. On the other hand, its EPS and EBITDA fell short of Wall Street’s estimates, and it lowered its full-year EPS guidance. Overall, this was a softer quarter. The stock traded down 5.2% to $233.16 immediately after reporting.
The latest quarter from FedEx’s wasn’t that good. One earnings report doesn’t define a company’s quality, though, so let’s explore whether the stock is a buy at the current price. What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock.
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