FedEx (NYSE:FDX) will report its Q2 financial results for Fiscal 2023 on December 20. The company’s top-line growth could soften a bit in Q2 compared to Q1 as there has been a decrease in demand for logistics services over the past few months. Consumers are cutting back on discretionary spending due to the slowing global economy and rising inflation. However, the company’s aggressive cost-cutting measures could cushion the bottom line.
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During the Q1 conference call, the company announced measures to reduce costs to align with the weaker-than-expected demand environment. FedEx expects to generate cost savings of $2.2-2.7 billion in Fiscal 2023. Moreover, FDX expects to realize about $700 million in savings in Q2.
Management expects to post revenue in the range of $23.5 to $24.0 billion in Q2. (Learn more about FDX’s financials here.) Meanwhile, adjusted earnings per share (EPS) are expected to be $2.75 or higher. Analysts expect FDX to post earnings of $2.82 per share in Q2.
Analyst Views on FDX Q2 Results
Against this backdrop, Robert W. Baird analyst Garrett Holland said, “While the demand backdrop remains challenging, benefits from cost-saving actions should bolster earnings trends moving forward and help shares hold recent gains.”
Holland anticipates a 3% increase in Ground (small-package ground delivery) revenues in Q2 compared to a 6% increase in Q1. The analyst expects the segment to benefit from higher pricing. However, weak consumer demand will likely hurt revenue growth.
As for Express (time-critical small-package ground delivery and freight transportation services), the analyst noted that weak global freight demand and negative operating leverage would impact the segment’s sales and margins. Meanwhile, the analyst expects Freight (less-than-truckload freight transportation services) revenues to mark 11% growth in Q2 compared to a 21% increase in Q1 due to weaker volumes.
Holland is bullish about FedEx and continues to “like the relative and absolute risk/reward.” The analyst’s price target of $230 is based on 13x his forward EPS estimate, which is lower than the historical average of about 14x.
What is the Prediction for FedEx Stock?
FedEx stock is down over 32% year-to-date. Meanwhile, Wall Street is cautiously optimistic about its prospects. It has received 10 Buy and 10 Hold recommendations for a Moderate Buy consensus rating. Furthermore, analysts’ average price target of $201.05 implies 17.08% upside potential.
Moreover, FDX stock carries an Outperform Smart Score of nine on TipRanks.
Bottom Line
Lower demand for global freight services and declining volumes will likely impact FedEx’s near-term financials. However, its aggressive cost-cutting measures and expected improvement in margins could support its stock price.
