FedEx Corporation's fiscal first-quarter earnings may experience challenges due to 'soft' parcel demand and a competitive pricing backdrop, according to analysts from UBS Securities. The parcel delivery giant is set to unveil its first-quarter results on September 19. In anticipation of these results, UBS has revised its earnings outlook for FedEx downward, adjusting the forecast to $4.70 per share from a previous estimate of $5.20.
This adjustment is notably in contrast to Wall Street's consensus estimate of $5.02 per share. Analysts from UBS, including Thomas Wadewitz, pointed out that the expected earnings downgrade is reflective of a competitive pricing environment characterized by generally subdued parcel market volumes and an observed trend of customers trading down to lower-tier services.
These market pressures were highlighted in the second-quarter financial results of FedEx's chief competitor, United Parcel Service (UPS), which reported mixed remarks on freight market trends that mirrored the overall sentiment. In a further sign of caution, UPS recently tempered its full-year revenue outlook, anticipating that U.S.
customers will continue to shift toward lower-cost service options. When evaluating the outlook for FedEx in fiscal 2025, analysts at UBS note several significant headwinds, including a reduced number of operating days, the loss of contracts with the United States Postal Service, and declining international yields.
These obstacles could lead to deviations from the usual seasonal earnings patterns in the upcoming quarter, even though FedEx’s comments during its fourth-quarter results in June suggested a standard seasonal first quarter. Despite these challenges, FedEx is also benefiting from key tailwinds associated with its DRIVE cost-savings initiative.
This program is designed to streamline operations by consolidating its operating companies into a cohesive, integrated air-ground network. Furthermore, UBS anticipates that FedEx's ongoing review of its freight business could provide additional support for the stock, suggesting the possibility of a separation from its current freight operations, which is expected to conclude by the end of the calendar year.
Analysts expressed optimism about this strategy, emphasizing that it reflects a well-thought-out approach to enhance operational efficiency. Recently, FedEx announced new peak season surcharges, which are described as 'broadly similar' to those implemented by UPS. Analysts from UBS view this move positively, noting that despite competitive pressures within the domestic parcel market, FedEx's decision to employ demand surcharges demonstrates a rational dynamic in market behavior. UBS maintains a buy rating on FedEx, with a price target set at $333 per share.
In the latest trading session, FedEx’s stock was priced at $283.63, reflecting a slight decline of $0.55, or -0.19%..