FedEx Earnings: Don’t Buy the Hype

Source: Thinkstock

On Wednesday, shares of FedEx (NYSE:FDX) soared as the company reported earnings and forward guidance. The stock was up about $9 to $149 per share. The company beat analyst expectations on the earnings front, reporting $2.46 per share versus an estimated $2.35 per share estimate. This is compared with earnings of just 95 cents per share in the same period a year ago.

Furthermore, the company released positive guidance figures, as the company expects the economy to grow by 3.1percent next year, and management believes that this will help push earnings higher. However, I think this is a great selling opportunity for FedEx investors, and there are several reasons for this.

First, while the company’s profits soared, its revenue rose by just 3.5 percent. While an increase in revenue is certainly a positive, the discrepancy between revenue growth and sales growth points to the fact that sales growth cannot continue at the current pace and that it will ultimately converge with earnings growth.

Second, revenue growth is decelerating. Revenue growth from 2012 to 2013 was 3.7 percent, and it was 8.7 percent in the previous year. Thus, while we may see growth in the next couple of quarters, the company’s forecast of higher growth is a countertrend assumption, and it has no basis in anything other than a statement from management that it believes the economy will grow faster in 2015.