Shipping specialist FedEx (NYSE:FDX) finally missed a pickup in June, falling short of analyst earnings expectations for the first time in two years and breaking a seven-quarter-long winning streak in the process. When it reports fiscal Q1 2008 earnings on Thursday, will FedEx pick up where it left off six months ago?

What analysts say:

•  Buy, sell, or waffle? Nineteen analysts follow FedEx, giving this high-flyer 12 buy ratings and seven holds.

•  Revenues. On average, they expect to see sales rise 6% to $9.07 billion.

•  Earnings. Profits are predicted to inch up just 1% to $1.54 per share.

What management says:
Reviewing FedEx's fiscal year report back in June, I mentioned a "cognitive dissonance buildup" on Wall Street. Let's revisit this potential pressure cooker before the actual news breaks tomorrow. FedEx guided us to expect between $7 and $7.40 per share in profits this fiscal year. If it comes to pass, this will translate into slower growth than the firm's long-term target (10% to 15% per year), but it will no longer fall short of Wall Street's expectations. Hearing FedEx's caution, the analysts hastily put eraser to paper, scribbled a few figures, and dropped their own expectations to $7.20 per share for the year. Thus, we're no longer in a situation in which FedEx must beat its own guidance in order to avoid disappointing investors.

What management does:
A good thing, too, because the trends in margins at FedEx have not been encouraging of late. Operating margins inched upwards last quarter but are right back where they were one year ago. Similarly with net margins. Although they're above their year-ago levels (in contrast to archrival UPS (NYSE:UPS), which is earning less profit per dollar of revenue now than it was one year ago), FedEx does appear to be trending downwards from a "rolling" peak reached in the August 2006 quarter.

Margins

2/06

5/06

8/06

11/06

2/07

5/07

Operating

8.8%

9.3%

9.7%

9.6%

9.2%

9.3%

Net

5.3%

5.6%

5.9%

5.8%

5.7%

5.7%

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:
What will it take to get FedEx's margins airborne once more? Perversely, it seems higher energy prices might help. Yep, you read that right.

You see, while CEO Fred Smith blamed "a slowing U.S. economy" and a "weakened industrial sector" as generally contributing to FedEx's "restrained" results last year, FedEx also named some more specific factors within the U.S. business. Namely, "a shift to lower-yielding services" -- which could be a sign of businesses trying to cut costs to deal with the aforesaid slowing economy. But FedEx also blamed "lower fuel surcharges" as hurting results at FedEx Express.

Strange to hear a company that makes its living burning fuel to move things around suggesting that the fact that it didn't have to add extra dollars to its invoices to compensate for rising costs hurt its revenues. And the fact that FedEx cut its surcharge by 25% partway through last quarter isn't going to help tomorrow's numbers any. But on the flip side, I guess this means investors need not fret over much now that we see oil testing $81 highs. This could well give FedEx an excuse to raise its surcharges to (over)compensate yet again.

What did we expect FedEx to deliver last quarter, and what did we discover when we opened the box? Find out in:

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Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.