FedEx Flummoxes

Hey, Mr. Market? I noticed that you've bid up FedEx (NYSE: FDX  ) shares by 6% since it released earnings on Thursday, and I've got a question for you: Did you read the same news I did?

The good
Sure, there was good news in the report. Daily package volumes in the FedEx Express and FedEx Ground segments were up about 5% on average in the fiscal third quarter 2008, and overall revenues increased 10% year over year to $9.44 billion.

The bad
But the bad news more than outweighed the good. A weakening U.S. economy depressed demand for U.S. domestic express, less-than-truckload deliveries, and copy and print services at FedEx's Kinko's subsidiary. Combined with soaring fuel costs, this dropped operating margins 70 basis points to 6.8%, wiping out any possibility of improved profit on the additional revenues. Result: Q3 profits dropped 7% to $1.26 per share, and free cash flow has been basically nonexistent.

The ugly
CEO Fred Smith blamed "persistently high oil prices, sluggish U.S. growth and continued concerns in the credit markets" for the quarter's poor performance. And CFO Alan Graf added that: "Looking ahead to our fiscal 2009, we are expecting a continuation of fourth quarter trends." Summing up the forecast, the two execs agreed that Q4 earnings could easily drop 8% to 18% year over year, to $1.60 to $1.80 per share. What's more, this is the best-case scenario, and assumes "no additional increases to current fuel prices and no further weakening in the economy." In other words, if fuel costs rise (think $4-a-gallon gas) or the economy weakens, next quarter's numbers could look even worse.

And the uglier
Not scared yet? Consider that up on Wall Street, analysts turned a deaf ear to FedEx's dire projections. "Professional" investors are still hoping to see FedEx turn in $1.81 per share this quarter -- more than the best that management is hoping for.

Now, you may look at FedEx's forward P/E ratio, and think that at 13.5 times next year's expected earnings, the stock looks cheap next to 13.3% projected growth (especially with UPS (NYSE: UPS  ) priced 10% higher). But knowing that Wall Street is ignoring the risk of a downside, you might want to think again.

Keep track of FedEx's recent earnings news in:


Read/Post Comments (0) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 605236, ~/Articles/ArticleHandler.aspx, 11/23/2014 7:21:33 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement