FedEx Flops

Star shipper, premier packeteer, and prized Motley Fool Stock Advisor recommendation FedEx (NYSE: FDX  ) shocked the markets yesterday, reporting its first quarterly loss in more than a decade. To which I can only say: "Toldja so."

And before I forget, let me say: "It's your own danged fault, FedEx." Had the company not deep-sixed the Kinko's brand name earlier this month, FedEx would actually have earned a profit in Q4. To this Fool's mind, the name change was utterly unnecessary, and did nothing to fix a business unit that currently lags Staples (Nasdaq: SPLS  ) , Office Depot (NYSE: ODP  ) , and OfficeMax (NYSE: OMX  ) .

So how bad was it?
On the off chance you've missed the dozens of stories that poured out of the financial press in the wake of FedEx's earnings release (hey, we're between earnings seasons, and it's a slow news month), here's a quick rundown:

  • Back out the one-time impairment charge that torpedoed net profits, and FedEx's core business would have earned $1.45 per share in fiscal Q4 2008. Not only would that have marked a 24% decline versus fiscal Q4 2007, it also would have fallen 9% short of FedEx's previous guidance to earn no less than $1.60 per share.
  • And yet, business was actually up, when measured by revenue. Sales for the quarter came in 8% higher than last year at just under $9.9 billion.

So how did FedEx translate 8% more business into 9% less profit than its own worst-case scenario? CEO Fred Smith blamed "record high fuel prices and the weak U.S. economy" for crimping growth in volume of packages shipped. Record fuel prices we all know about. As for the economy's effect on shipping, we'll check and see if UPS (NYSE: UPS  ) seconds that emotion next month. But even if it doesn't, the bad news won't end with FedEx. According to Smith, "Total combined average daily package volume in the FedEx Express and FedEx Ground segments grew 1% year over year for the quarter" -- but only because international priority shipments rose 6%.

In other words, U.S. shipments shrank, which suggests bad news may be in store for the many U.S. companies that use FedEx to get their goods into customers' hands -- companies like Green Mountain Coffee Roasters (Nasdaq: GMCR  ) and J.Crew (NYSE: JCG  ) . Chances are that if such companies weren't shipping as much as FedEx expected, then they also weren't selling as much as they had expected. Forewarned is forearmed, my fellow Fools.

Keep track of FedEx's recent earnings news:

Find out what the Stock Advisor team, which has made FedEx an official recommendation, thinks of this week's news when you sign up for a free trial of the service.

Fool contributor Rich Smith does not own shares of any company named above. UPS is an Income Investor recommendation. The Motley Fool's disclosure policy likes brown paper packages wrapped up with string.


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