FedEx Earnings Report Lights Fire Under Air Transport Group
The air freight transport industry group was Thursday’s top performer, thanks to a big move in FedEx ( FDX ), which reported better-than-expected earnings. The group is rated only No. 72 out of 197, as of Thursday’s IBD, but it is moving up quickly. It was rated No. 146 just six weeks ago. The rise of the air freight group should be considered a good sign for the global economy. If shippers are busy, the reasoning goes, then so are the manufacturers. And consumers are buying. FedEx, which reported after the close Wednesday, said lower fuel prices and a late surge in online buying helped boost earnings and revenue. The company posted adjusted Q3 earnings of $2.51 a share, a 24% increase from a year earlier, beating Wall Street’s consensus of $2.33. Revenue of $12.65 billion beat estimates of $12.26 billion. It marked the third straight quarter of earnings growth acceleration. The stock gapped higher, surging above its 200-day moving average in massive volume. The stock might be building the right side of a long, deep base. There are just five stocks in the industry group, where the need for a fleet of jets and trucks is a barrier to entry. United Parcel Service ( UPS ) was up sharply in sympathy with FedEx. It appears to be completing the right side of a base. UPS got a boost Feb. 2 when it reported Q4 earnings that beat the Street. It was a critical quarter for freight haulers, which have been criticized for slow deliveries during the holiday shopping season. UPS earned $1.57 a share, a 26% increase from a year earlier and better than the $1.42 consensus. Revenue was up just 1% from a year earlier. CEO David Abney said in the conference call after the report that the company was able to optimize available capacity during the weekend prior to Christmas and collaborate with shippers to tender shipments ahead of the original schedule. “This moved our peak day up to Dec. 21 and smoothed volume for the rest of the week, ensuring our customers’ packages reached their customers’ doorsteps before Christmas,” Abney told analysts. Another company in the group, Air Transport Services ( ATSG ), gapped up for a 16% gain March 9 when it announced earnings that were better than expected. But another press release from the company may have excited investors more. The company said it had agreed to operate a U.S. air network to help Amazon ( AMZN ) make deliveries. The company said it will lease 20 Boeing ( BA ) 767 freighter aircraft and provide gateway and logistical services. A fourth company in the industry group is Atlas Air Worldwide ( AAWW ), whose stock has been lagging and is still trading below its 200-day moving average. The stock also trades on the thin side, with just 316,000 shares changing hands on an average day. It’s earnings growth in the most recent quarter was just 3% above that of a year earlier and represents a serious deceleration of growth. Analysts expect a 75% decline in the next report. Revenue growth decline 3% in the past two reports.