Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



FedEx to Investors: Honest! The Check's in the Mail!

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

After initially plummeting on an anemic earnings report yesterday, FedEx (NYSE: FDX  ) shares rebounded to end the day notching a 2% gain. Fast-forward fewer than 24 hours, though, and FedEx has already given back yesterday's winnings as investors think, rethink, and re-rethink what the report actually told them. So which is it, Fools? Should FedEx fly, or did it fumble its fiscal Q2 2011 earnings report?

Well, let's see here. Right off the bat, earnings dropped 19% year over year, ending at $0.89 for the quarter. That's clearly bad news. Last quarter, as you may recall, FedEx warned us that it wouldn't hit the $1.36-per-share target that Wall Street had set for it. It might earn $1.25. It could earn as little as $0.97 per share.

Now that we've opened the actual earnings package, though, we now know that all three of those guesses were wildly optimistic, and way off the mark. Despite enjoying "solid demand for our transportation solutions, outstanding customer service from FedEx team members, and a healthier global economy," as CEO Fred Smith put it, FedEx wasn't able to send the ball across the goal line. Instead, charges taken against potential legal liabilities, combined with the costs of reorganizing the FedEx Freight business to better compete with LTL shippers Arkansas Best (Nasdaq: ABFS  ) , Con-way (NYSE: CNW  ) , and YRC Worldwide (Nasdaq: YRCW  ) (not to mention UPS (NYSE: UPS  ) ), cost FedEx $0.27 per share -- and even had they not, FedEx still would have missed its promised midpoint guidance of $1.25.

But wait! It gets better!
But let bygones be bygones, FedEx tells us. Next quarter's gonna be boffo. Now that all these niggling "one-time charges" are behind it, the company promises to turn things around in Q3, then go on to close out the year with anywhere from $5.00 to $5.30 in profits per share -- numbers better than it thought it could achieve just three months ago.

Of course, this depends on "stable fuel prices and continued moderate growth in the global economy" happening -- a strange precondition, given that economic growth can be expected to cause oil demand, and fuel prices, to rise. Despite getting the second half of its wish last quarter, CFO Alan Graf noted that when FedEx was surprised by "higher fuel prices than our earnings guidance had assumed" in Q2, that contributed to the earnings miss.

In short, when FedEx tells you it expects "margins to improve in the second half of fiscal 2011 and in fiscal 2012," be aware that there's a certain element of wishful thinking in that expectation.

Fool contributor Rich Smith has no position in any stocks named above, but FedEx is a Motley Fool Stock Advisor recommendation, United Parcel Service is a Motley Fool Income Investor pick, and the Fool owns shares of them both. The Motley Fool has a disclosure policy.

Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Read/Post Comments (2) | Recommend This Article (15)

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.

  • Report this Comment On December 17, 2010, at 10:55 PM, roncee wrote:

    Well, someone's finally beginning to get it! Ol' Fred's been jerking the investors around for quite a few quarters. Lower pre-quarter earnings announcements so the company can beat expectations and all sorts of shenanigans. With cash flow numbers and debt ratio this is a $60 - $65 stock in the real world.

  • Report this Comment On December 21, 2010, at 4:27 AM, yosemitebean wrote:

    I wonder what would happen if all of the the new tea party members quit using FedEx?

Add your comment.

Compare Brokers

Fool Disclosure

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: 1404487, ~/Articles/ArticleHandler.aspx, 10/23/2016 6:02:33 AM

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...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:00 PM
ARCB $19.35 Up +0.25 +1.31%
ArcBest CAPS Rating: **
CNW.DL $0.00 Down +0.00 +0.00%
Con-way CAPS Rating: No stars
FDX $170.20 Up +0.50 +0.29%
FedEx CAPS Rating: ****
UPS $107.16 Down -0.24 -0.22%
United Parcel Serv… CAPS Rating: ****
YRCW $12.44 Up +0.02 +0.16%
YRC Worldwide CAPS Rating: *