FedEx vs. the world: It isn’t good news
Today's Financial News - Posted June 17, 2009
One of the most economically telling companies released its latest results today. The news out of FedEx (NYSE:FDX) is far from a breath of fresh air. If the company is correct, the next six months could be downright brutal.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): If I had to pick just one company to use as a barometer for the entire global economy, it would be FedEx (NYSE:FDX).
It makes perfect sense. The company’s product is shipping other people’s products around the world. The busier the business environment, the stronger the company’s revenues. But it does not stop there.
FedEx is also impacted by rising energy prices. It has to deal with political tensions. And most recently, it has been forced to deal with the effects and expense of organized labor.
When times are good, FedEx does well. When the world slumps, the company nosedives right alongside everybody else.
According to the shipper’s latest quarterly figures, times are bad, real bad.
Earlier today, the Memphis-based firmed released its Q4 results. While the news was not horrific (the company showed a profit if you exclude one-time transactions), the company’s official outlook has the Street ducking for cover.
Recovery? What recovery?
If FedEx is expecting the next two quarters to be “extremely bad,” you can figure the rest of the economy is going to look equally terrible.
The company’s executives effectively put their money where their mouth is when they released forecasted Q1 earnings of just $0.30 to $0.45 per share. Analysts were expecting a figure of $0.68 per share. Way off.
So what’s the problem for FedEx?
The first is the most obvious. With an economy moving at a trickle of the pace it did just a year or so ago, FedEx is moving fewer packages. It is taking a big chunk out of its revenues. During the most recent quarter, revenues fell to $7.85 billion, a whopping 20% hit.
Anytime revenues take a hit, seasoned businessmen knows it is time to cut costs. Unfortunately for FedEx, many of its costs are out of its control. Besides streamlining the process (I’m sure they already thought of that), the company must monitor and minimize its fuel and labor expenditures.
With crude prices doubling since March and legislation in the works that could allow FedEx employees to unionize much more efficiently, shareholders are right to be worried. Today’s 2% hit to share price may not be enough.
The largest variable will be energy prices. Sure the company has hedges in place, but it certainly is not entirely protected from large swings in either direction. A sudden drop in crude prices would be a significant benefit to next quarter’s bottom line.
This is a company to watch. If rumors begin to trickle out of the top offices that things are not all that bad, expect the economy to show significant signs of improvement. But if we hear of massive changes from FedEx, brace for another dose of the March lows.
We are in a critical time period. There have been several tests this month involving key indicators. So far, there is little information to sway the markets in either direction. The bears are still circling the Street, waiting for another opportunity to attack.
A few more headlines like we are seeing out of FedEx and they will have all the enticement they need to make a full-on attack.
Next Article: Can Obama and his team crush Wal-Mart?
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