What This Company’s Earnings Say About the Broader Market

Company’s Earnings Say About the Broader MarketFedEx Corporation (FDX) just bounced off a new record-high on the stock market and is an important component of the Dow Jones Transportation Average.

In its fiscal first quarter of 2015 (ended August 31, 2014), the company’s sales and earnings surged. It was a great quarter and a strong indicator for the rest of the market.

Total revenues grew six percent to $11.7 billion. This may not sound like a lot of growth, but it is for such a mature enterprise in a very competitive industry.

But the big news was the company’s strong earnings growth. Net income grew 24% over the same quarter last year to $606 million. Diluted earnings per share grew 37% to $2.10, of which $0.15 per share of the total was due to share repurchases during the quarter. The company bought back 5.3 million of its own common shares in its fiscal first quarter and no shares remain now under existing repurchase authorization.

Each of the company’s three main operating divisions posted solid gains in revenues and operating earnings.

Higher rates are not affecting demand. In fact, FedEx is experiencing higher revenue per package including increases in residential and fuel surcharges, and this is going right to the bottom-line. And rates are going up by an average of 4.9% at the beginning of 2015 for FedEx Express, FedEx Ground, and FedEx Freight, which cover most of North America, Hawaii, Puerto Rico, and the U.S. Virgin Islands.

What the company didn’t do in its latest earnings report was increase its existing financial guidance for fiscal 2015. But this isn’t unusual for management to underplay their expectations only to “outperform” with future quarterly results.

After the company’s great first quarter of 2015, Wall Street analysts boosted earnings expectations across the board for upcoming quarters and the next fiscal year.

What FedEx reports about its business conditions is material to the stock market. E-commerce is still driving the growth in its shipping business and management must feel pretty confident to soon effect a five-percent increase in prices on the back of other surcharges.

After the company reported its latest quarter, the stock blasted to a new high. The position didn’t do anything in the first half of the year but has now materially broken its recent consolidation trend.

Last year, FedEx’s share price appreciated from just less than $100.00 a share to $140.00, which is a huge move for any company.

The fact that the position has broken out of its recent, well-deserved price consolidation is a positive both for the stock itself and the broader market. (See “Why the Old School Dow Theory Still Applies.”)

The calendar third quarter will soon be at an end and another earnings season will begin. It’s exactly what this market needs, and I suspect the numbers will come in pretty decent, similar to the second quarter.

FedEx is worth about half of United Parcel Service, Inc. (UPS) in terms of stock market capitalization. UPS reports later this week and if the company’s numbers are also good, it will represent a positive sign for stocks and the economy.