FedEx slashes full-year outlook
But it's just playing the earnings game. If the holiday season comes in as expected, the shipper will be fine.
Shares of FedEx (FDX) slumped Tuesday after the shipper slashed its profit outlook for the the fiscal year, underscoring investors' growing unease about the slowdown in the worldwide economy.
FedEx expects to earn $6.20 to $6.60 per share in fiscal 2013, down from an earlier forecast of $6.90 to $7.40. That misses the $7.04 expected by Wall Street analysts. FedEx projects earnings to be 1.30 to $1.45 in the quarter, below the $1.67 consensus forecast. The reasons offered by CFO Alan B. Graf Jr. have a familiar ring to them.
"Earnings for the first quarter were below our expectations as weak global economic conditions dampened revenue growth, drove a shift by our customers to our deferred services and outpaced our near-term ability to reduce FedEx Express operating costs to match demand levels," he said in an earnings press release.
Though Graf is making it sound like the world is coming to an end, the reality is a bit murkier. For instance, FedEx's results in the most recent quarter were not great, but they were not godawful either. Net income fell 1.1% to $459 million, or $1.45 a share, from $464 million, or $1.46 a share, a year earlier, beating the $1.40 consensus forecast. Revenue rose 3% to $10.79 billion, ahead of the $10.7 billion Wall Street expected.
Investors should be skeptical about FedEx's claims.
Consider the earnings guidance. The range of the forecast for fiscal 2013 is 40 cents, wide enough to drive a truck through. FedEx is playing the "earnings game," whereby companies place the bar so low that, barring an alien invasion, the company will "make its numbers."
The future for FedEx isn't bright, but its not terrible either. Indeed, though consumer confidence fell recently, economists are expecting an OK holiday season.
FedEx isn't hunkering down in the face of uncertain economic headwinds. The company raised rates on FedEx Freight by 6.9% in July and will increase shipping rates on U.S. domestic, U.S. export and U.S. import services by a net average of 3.9%, effective in January. FedEx is expected to unveil a broad cost-cutting plan in October, which CEO Frederick Smith said will not include layoffs, according to a spokeswoman. Shareholders will see the benefits of the cost cutting fairly quickly.
Though consumers are using slower, cheaper forms of shipping, they're still going to ship plenty of goods by air. As the holiday season draws closer, more consumers will probably take advantage of next-day shipping, though perhaps not as many as in previous years. The U.S. economy may be showing signs of distress, but unlike Europe, it's still growing.
Wall Street hasn't lost faith in FedEx. The average 52-week price target on the stock is $103.67, about 16% higher than where it trades now. FedEx's stock appears to be cheap. It trades at a price-to-earnings ratio of 13.94, near its five-year low, according to Reuters.
FedEx may be a bellwether of the economy, but investors shouldn't read too much into how it manages earnings expectations.
Jonathan Berr does not own shares of the listed stocks. An earlier version of this post said that the company probably would lay off employees. Follow him on Twitter@jdberr.
So ... why the misleading headline???
They also aren't saying that they give huge discounts to retailers such as Walmart to be the only shipper of online orders. I'm sure Walmart pays a lot less to ship a package than I do as a regular consumer. Don't tell me that doesn't affect their bottom line.
What nit-wit needs FedEx to them them that the economic outlook doesn't look so good.
I am no Einstein but have figured that one out all on my own.
I hardly ever overnight documents anymore because I can scan and e-mail them in seconds for free.
And we all know the economy still sucks.
So many people out of work,you could tap in to your 401k, lets see fed ex 25 dollars or snail mail for free,
since i ll need every dime after they tax thats at 20% and a 10% penalty i ll use the US postal service
every time.I fIll so sorry for ya Fed Ex when i did run a buisness those rude drivers getting 20 or 30
dollars an hour even though i used the ground service several times a month.
Hire more people in American and stop downsizing and controlling working people. Stop scraping the cream off the top and stop sending the money out of America to escape helping workers to have benefits. More money more people can spend in America bingo. The economy will pick up again. Give Americans a full time good wage with a benefits and a good working environment.
Plain and simple...it is about the campaign! Romney and Fredrick Smith, head of FedEx are tight buddies. Why not put out the word the economy is slowing down:? Who does it help and who does it hurt?
Romney's horse flew on a private jet owned by FedEx to the Olympics:
"Rafalca, a 15-year-old Oldenburg mare owned in part by the Romney's,..... flew across the Atlantic on a FedEx jet (no, they didn’t strap her to the roof) and reportedly dined on an in-flight meal of watermelon".
And type in Fredrick Smith Campaign Donations and Contributions and Romney!
CAN'T POST LINKS ON HERE...........DO YOUR RESEARCH AND ASK YOURSELF, WHY IS HE DOING THIS NOW, WHAT DOES HE STAND TO GAIN? RESEARCH WHAT IS BEHIND THE STORY!!!!!!!!!!!
hmmmmmmmmmmmm smells fishy to me!
I called fedex to ship A package ,they said "do you have an account with us"
? I said no , they said then you cannot ship with us !
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Do it once a year. This allows the best-performing asset classes to take off and run.
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