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Despite Trade War Worries, Better Than Expected Profits Delivered By FedEx

Despite Trade War Worries, Better Than Expected Profits Delivered By FedEx
Driven by increased revenues and operating margins of each of the operating units of FedEx Corp, the profits of the company beat estimates of Wall Street for the fourth-quarter.
The worries over the U.S.-China trade war had resulted in its worst regular session sell-off in two months this week but the news of the expectation beating reports cause the share of the Memphis-based package delivery company make up some of the losses in after-hours trading.
FedEx and its main rival United Parcel Service Inc is often considered to be the bellwether for the U.S. economy. Following threats of retaliatory measures by China against U.S. President Donald Trump’s plan to impose a 10 percent tariff on $200 billion of Chinese goods, the brunt of the damage was borne by FedEx and companies in the industrial sector.
“I have never been so optimistic and so sure of our strategy and our ability to deliver an exciting future,” FedEx Chief Executive Frederick Smith said on a conference call.
Compared to Thomson Reuters I/B/E/S estimates, the company beat profits for the fourth-quarter profit, excluding items, by 20 cents per share, which touched $5.91 per share. The revenue of the company was the same as expected by the Wall Street with a 10.2 per cent increase to touch $17.3 billion.
Share buybacks, tax benefits, higher package volume, more efficient operations and rate increases drove latest quarter’s results, said analysts.
“We do remain concerned, however, about threats that manage the free flow of goods among countries. Trade is a two-way street, and FedEx supports lowering trade barriers for our customers, not raising them,” Smith said, echoing the comments he made on Friday.
A wait-and-see stance is being taken by investors, say some analysts.
“At this point we believe it’s more bark than bite,” Edward Jones analyst Logan Purk, said. A preferred negotiating tactic is apparently being employed by Rump, Purk noted.
More investments compared to rival UPS has been made by FedEx in enhancing its network with the aim of being more efficient in handling of the increasing number of deliveries for online purchases and other packages. Investors are now awaiting a return on those investments.
Trip Miller, managing director at Memphis-based hedge fund Gullane Capital Partners, who also personally holds FedEx shares said that those investments paid off in FedEx’s fourth quarter.
“We expect that to accelerate over the next three years,” barring a trade war or economic downturn, Miller said.
Shares of both FedEx and UPS were down about 2 percent.
While analysts were expecting about 6 percent growth, FedEx forecast fiscal 2019 revenue growth of about 9 percent.
Excluding some items, fiscal 2019 earnings per share of $17.00 to $17.60 is expected by FedEx, the company said.

Christopher J. Mitchell

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