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.

By Jonathan Berr Sep 18, 2012 11:13AM

Boxes, Michael Hitoshi, Getty ImagesShares 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.

Tags: FDX
32Comments
Sep 18, 2012 2:05PM
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MSN says a little later in its article  ,,, "Investors should be skeptical about FedEx's claims."

So ... why the misleading headline??? 
Sep 18, 2012 3:13PM
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Now we have the liberal press trying to make light of business forecasts in order to cover up Obama's failures. This same report would have been portrayed as the "end of the world" under any republican administration.
Sep 18, 2012 3:22PM
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In unrelated news, UPS reports record revenues ;-).
Sep 18, 2012 3:12PM
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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.

 

Sep 18, 2012 3:32PM
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Maybe it's FedEx that is slowing and not the economy.  People just don't arbitrarily use FedEx as much as they did prior to 2008.  Most companies wasted ton's of money shipping FedEx and are smarter about how they handle documents, product and alternative path's that have become available in the past 2-4 years.  Maybe the FedEx model is just becoming obsolete or maybe people are just planning better and not waiting unti the last minute. 
Sep 18, 2012 3:21PM
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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.

Sep 18, 2012 4:22PM
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I hardly ever overnight documents anymore because I can scan and e-mail them in seconds for free.

Duh Fedex.

 

And we all know the economy still sucks.

Sep 18, 2012 4:12PM
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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.

Sep 18, 2012 4:07PM
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I've had two experiences with FedEx in the last 6 months. In one, they delivered a package for me 6 blocks away; said no one was home and dropped it on the doorstep. Then two days later they delivered a package to my house that was supposed to go next door. I guess you don't have to be accurate to drive for FedEx. Actually you apparently don't even have to be close. No wonder their earnings are dropping.
Sep 18, 2012 4:34PM
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Hey OBAMA, are you listening to FedEx??? They say YOUR economy SUCKS!! You have had 4 YEARS to do something! The PRIVATE SECTOR is FINE??? You tried your plan and it worked??? You OBAMA are one sick, twisted, lame SOB!!!
Sep 18, 2012 3:59PM
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Fed X should be expanding as should UPS due to the growth of shipping internet purchases so there's more to this than the economy. This economy has been stalled for several years, up , down etc. The economy is based of the few wealthy people who rule this, the rest of us are just here to facilitate their growth. 
Sep 18, 2012 2:52PM
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big business always cries if sales aren't what they "project" on thier earnings. That means the profit they make. boo hoo poor babies can't make it on the millions they make.
Sep 18, 2012 4:44PM
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obama is a great president  this economy would be really bad if he wasnt a great president  we will be better offf in the next 4 years  after are  great president is relected. 
Sep 18, 2012 4:18PM
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Simple fix

 

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.

Sep 18, 2012 4:32PM
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With Obama what else can you expect. Bad economy and Obama go hand in hand. Vote him out in November and return this country to it's former glory.
Sep 18, 2012 4:36PM
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HELLO TOMKAT--

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!

 

Sep 18, 2012 5:05PM
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i for one have no surprise that FEDEX is not doing well they cant even deliver a package on time  tho they guarantee it    i just doesn't get here  and they say we'll give you a refund..  what a way to have repeat business   and its been that way for a long  time   talk to some of their flighy crews   it's a real eye opener.. a very good idea gone down the tubes because of customer non- service   OH WELL
Sep 18, 2012 4:39PM
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FedEx delivered A package to me ,they were using A Ryder rental truck , I asked the driver if they didn't have their own truck ?"he said none that run"
Sep 18, 2012 4:34PM
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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 !

Sep 18, 2012 3:47PM
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Everybody Fed Ex something today.
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