FedEx's (FDX) fiscal fourth-quarter earnings could fall short of Wall Street's expectations as margin pressures continue to outweigh "stable" sales trends, Morgan Stanley said in a note e-mailed Wednesday.
The parcel delivery giant is expected to report earnings of $5.58 a share for the quarter, below the Street's views for $5.92, according to Morgan Stanley. The brokerage projects quarterly earnings before interest and taxes at $1.92 billion, also lagging the $2 billion modeled by analysts.
"We expect FedEx (fourth-quarter) EBIT and EPS to come in modestly below consensus, as margin pressures continue to outweigh stable revenue trends," Morgan Stanley said in a note to clients.
FedEx is scheduled to report results June 23. The company completed the spin-off of its freight business recently. FedEx Freight (FDXF) now trades as an independent company on the New York Stock Exchange under the ticker symbol FDXF.
"Following the June 1 separation, we expect both FedEx Express and FedEx Freight to deliver (fourth-quarter) results that are modestly ahead on revenue, but below (consensus) EBIT, reinforcing our view that pricing stabilization may not be translating into the degree of margin recovery implied by expectations," Morgan Stanley said.
The express segment's EBIT and margins remained pressured in the quarter despite a sequential improvement due to persistent cost headwinds, according to the note.
The freight business' operational trends "appear to be stabilizing following a difficult" third quarter, the firm said. However, "weaker-than-expected pricing and continued volume pressure are expected to weigh on earnings," Morgan Stanley wrote.
Investors are not expected to not have "full standalone visibility" into the parcel and freight businesses until late October, as disclosures roll out in phases, according to the note.
"As both businesses begin operating independently, we believe investors will increasingly focus on the sustainability of normalized margin profiles, particularly as the gap between revenue performance and earnings conversion remains a key concern across both segments," Morgan Stanley said.
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