FedEx Corporation (NYSE:FDX)’s stock opened sharply lower on Wednesday after the American global courier delivery services company reported its financial results for the first quarter of fiscal 2016 and modestly trimmed its full-year outlook, mainly due to weaker less-than-truckload shipping (LTL) demand and higher than expected self-insurance reserves and operating costs in its ground segment.
The Memphis-based company reported a net profit of $692 million or $2.42 per share, up by 6% on the year, with revenue coming in at $12.3 billion, up from $11.7 billion delivered a year earlier. However, the results fell short of expectations of earnings of $2.46 per share on revenue of $12.3 billion.
FedEx also said it expects EPS for fiscal 2016 to be in the range of $10.40 to $10.90, modestly lower than its previous guidance of $10.60 to $11.10. The outlook assumes moderate economic growth and excludes any operating results or costs related to TNT Express. FedEx Corporation (NYSE:FDX) executive vice president and chief financial officer Alan B. Graf, Jr. said that the company still expects strong earnings growth this year as it continues to execute its profit improvement program, leverage its e-commerce growth and enhance revenue quality.
A day before releasing its first-quarter results, FedEx Corporation (NYSE:FDX) announced it would raise shipping rates at its FedEx Express, FedEx Ground and FedEx Freight shipments starting January 4, 2016. Starting November 2, FedEx said, it will also increase the surcharges for shipments that exceed the published maximum dimensions in the FedEx Ground Network.
The market reaction to the earnings is not surprising, but what is more important to see is whether today’s decline makes FedEx Corporation (NYSE:FDX) more attractive to buy betting on its long-term performance. A metric that can help us to assess this is the hedge fund sentiment towards the stock. At Insider Monkey we follow a pool over 700 hedge funds and we analyze the hedge fund sentiment by analyzing the popularity of a stock among them. The importance of the hedge fund sentiment is supported by our backtests that covered 13F filings between 1999 and 2012, and which showed that some of the hedge funds’ long positions can be imitated in order to generate market-beating return. Contrary to the popular opinion, hedge funds’ most popular picks have underperformed the market by seven basis points per month on average in our bactests, while their top small-cap ideas returned around one percentage point above the benchmark. Our small-cap strategy focuses on imitating a portfolio of 15 most popular stocks among hedge funds and it has returned 118% since it went live in August 2012, beating the S&P 500 ETF (SPY) by more than 60 percentage points (see more details here).
The company’s weaker-than-expected earnings result and the lowering of its outlook seemed to have not been anticipated by hedge fund investors. During the second quarter of this year, 52 hedge funds held $3.33 billion worth of FedEx Corporation (NYSE:FDX) stock, representing around 6.90% of the company. The number of hedge funds that held FedEx stock in the second quarter rose from 49 a quarter earlier, although the amount held by investors dropped by $50 million on the quarter, amid a 3% growth of the stock.
Overall, among the funds we track, Mason Hawkins’ Southeastern Asset Management tops the list of FedEx Corporation (NYSE:FDX) shareholders with 5.13 million shares valued at $874.6 million, followed by Edgar Wachenheim’s Greenhaven Associates, which holds 4.50 million shares. Bill & Melinda Gates Foundation Trust, managed by Michael Larson, is the third largest stockholder with 3.02 million shares.
With this in mind, as FedEx Corporation (NYSE:FDX)’s stock lost ground on the back of the weaker-than-expected financial results, the smart money sentiment suggests that it does not represent a good long-term bet. The stock is down by over 13% so far this year and the company will have to make more effort to convince investors to change their mind.
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