Parcel and cargo delivery company FedEx (NYSE:FDX) missed Wall Street’s revenue expectations in Q4 CY2024, with sales flat year on year at $21.97 billion. Its non-GAAP profit of $4.05 per share was 3.1% above analysts’ consensus estimates.

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Company Overview

Sporting one of the largest air cargo fleets in the world, FedEx (NYSE:FDX) is a global provider of parcel and cargo delivery services.

Air Freight and Logistics

The growth of e-commerce and global trade continues to drive demand for expedited shipping services, presenting opportunities for air freight companies. The industry continues to invest in advanced technologies such as automated sorting systems and real-time tracking solutions to enhance operational efficiency. Despite the advantages of speed and global reach, air freight and logistics companies are still at the whim of economic cycles. Consumer spending, for example, can greatly impact the demand for these companies’ offerings while fuel costs can influence profit margins.

Sales Growth

A company’s long-term sales performance signals its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, FedEx’s sales grew at a tepid 4.8% compounded annual growth rate over the last five years. This was below our standard for the industrials sector and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. FedEx’s history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 3.6% annually. FedEx isn’t alone in its struggles as the Air Freight and Logistics industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time.

This quarter, FedEx missed Wall Street’s estimates and reported a rather uninspiring 0.9% year-on-year revenue decline, generating $21.97 billion of revenue.

Looking ahead, sell-side analysts expect revenue to grow 3.5% over the next 12 months. Although this projection implies its newer products and services will spur better top-line performance, it is still below the sector average.

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Operating Margin

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

FedEx was profitable over the last five years but held back by its large cost base. Its average operating margin of 5.9% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

Analyzing the trend in its profitability, FedEx’s operating margin might have seen some fluctuations but has generally stayed the same over the last five years, which doesn’t help its cause.

In Q4, FedEx generated an operating profit margin of 4.8%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

FedEx’s unimpressive 4.4% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

In Q4, FedEx reported EPS at $4.05, up from $3.99 in the same quarter last year. This print beat analysts’ estimates by 3.1%. Over the next 12 months, Wall Street expects FedEx’s full-year EPS of $16.94 to grow 27.6%.

Key Takeaways from FedEx’s Q4 Results

It was encouraging to see FedEx beat analysts’ EPS expectations this quarter. On the other hand, its EBITDA missed significantly and it lowered its full-year EPS guidance. Overall, this quarter wasn't great, but the company formally announced it would pursue a divestiture of its Freight business.

Investors have speculated about a potential spin-off after FedEx teased it on June 26, 2024. Shares soared by more than 15% that day to ~$296, the highest level (at the time) since mid-2021. The stock drifted a bit higher in the following months, topping out at ~$310, but has declined since then. Immediately following this announcement, however, shares traded back up to $302 (+9.5%).

Should you buy the stock or not? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.