Foolish Forecast: FedEx Will Straighten Up, Fly Right

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The FedEx (NYSE: FDX) delivery truck will show up at Wall Street's door tomorrow morning with fiscal 2009 results. What should you expect?

What analysts say:

• Buy, sell, or waffle? Fifteen analysts load up FedEx with four buy ratings and 11 holds.
• Revenue. On average, they expect to see 7.8% sales growth to $9.92 billion.
• Earnings. It's predicted that profits will fall 23% to $1.21 per share.

What management says:
Close, guys, but no cigar -- this transport company aims to beat the Street's previous expectations of $1.18 by a nickel. Last week, management clued us in to the fact that the falling cost of oil has lowered FedEx's fuel costs so much that in all probability, it will trump its own original first-quarter guidance by nearly 40%. (And yet, FedEx held firm on its full-year guidance -- what's up with that?)

What management does:
To steal (and politely water down) a line from a former president, it's the economy, silly. Ignore the happy talk coming out of the CEO's offices at McGraw-Hill (NYSE: MHP) and Home Depot (NYSE: HD). As recent events at Lehman (NYSE: LEH) and Merrill Lynch (NYSE: MER) have revealed, the U.S. economy still has some serious problems to work through, problems that will hobble business growth for some time.

You see, the reason fuel costs are falling is because ... there's less demand for fuel these days. The reason for this is partly because the stuff just costs so darn much. But it's also because factories are shuttering and don't need to burn as much midnight oil; consequently, fewer people have jobs they need to drive to, and so on and so on.

So while the lower cost of fuel per se is good news for FedEx (and yes, also for archrival UPS (NYSE: UPS), the rest of what's going on here is pretty bad news -- and you're seeing the effects in FedEx's margin trends:

Margins	2/07	5/07	8/07	11/07	2/08	5/08
Operating	9.2%	9.3%	9.2%	8.9%	8.7%	7.8%
Net	5.7%	5.7%	5.7%	5.5%	5.3%	3%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
That said, remember the old line about lies, da*n lies, and statistics. Much of the da*age shown in the last frame of the above chart comes from a single incident of stunning stupidity on FedEx's part: The decision to change Kinko's name, nuke its own goodwill, and consequently book its first quarterly loss in more than a decade.

The good news is that, with last year's gigantic blunder behind it, you're going to see FedEx's trailing margins rise steeply -- both tomorrow, and in quarters to come.

Find further FedEx Foolishness in:

• FedEx Flies
• Unloved Stocks Ready to Shine
• FedEx vs. UPS: And the Winner Is ...
• FedEx Flops ... and UPS Follows