Once again, FedEx (NYSE: FDX ) saved the worst news for last.
One year ago, the company reported its first quarterly loss in more than a decade, laid low by a massive charge to goodwill. Yesterday, the company took a similar charge, for the same reason, and reported yet another loss. Thus, $0.64 per share in pro forma profits minus $3.46 per share in charges left the firm with a $2.82-per-share loss for the fiscal fourth quarter.
CEO Fred Smith put the best spin he could on the news: "FedEx operations performed well even with strong economic headwinds, thanks to decisive management actions to control costs and committed team members." Yadda, yadda, yadda. And of course: "There are signs that the worst of the recession is behind us ..." Still, Smith said basically the same thing last quarter -- and look how that turned out ...
Revenues are down 20% year over year; including impairment charges, losses more than tripled. And now the company faces the threat of higher costs if Congress subjects it to the same laws governing UPS (NYSE: UPS ) -- a threat that FedEx deems so dire that it may cancel an order of Boeing (NYSE: BA ) freighters.
None of this sounds particularly encouraging, I must say. Nor do the conflicting signals coming from within FedEx. CFO Alan Graf warned that the "operating environment for our first two quarters in fiscal 2010 is expected to be extremely difficult."
On the other hand, though, Smith expects "quarter-over-quarter economic improvement later this calendar year," stating that "inventory to sales ratios are starting to moderate" to support his prediction. This would jibe with last quarter's forecast that "Inventories are now being bled off and they will have to be restocked beginning later in the year."
So, how's that working out?
Funny you should ask. Putting Smith's three-month-old prediction to the test, I took a spot check on inventory trends at four major retailers (at least two of which are known to patronize FedEx):
- Inventories at Home Depot (NYSE: HD ) , Lowe's (NYSE: LOW ) , Sears Holdings (Nasdaq: SHLD ) , and Best Buy (NYSE: BBY ) were higher than their quarter-ago levels (rising 7%, 10%, 8%, and 15%, respectively).
- On the other hand, the sales growth needed to support higher inventories varied widely. Sears' top line shrunk 24% and Best Buy had the worst overall number -- a 31% reduction.
- The success stories are Home Depot, with a nearly 11% improvement, and Lowe's, which was the top performer with sequential revenue growth of more than 18%.
Taken as a whole, I see room for optimism today. Some retailers do seem to be growing their sales. Based on my small sample, many are growing inventories, too. The more who do the latter, the better for FedEx.
And what does FedEx need to avoid doing? Find out in: