FedEx's Fate Up in the Air

"FedEx Profit More Than Doubles" -- Wall Street Journal

"FedEx Reports Profit That Trails Estimates ..." -- Bloomberg

Now hold up a sec, folks -- which is it? I know FedEx (NYSE: FDX) reported earnings this morning. But I'm pretty sure they didn't give one set of numbers to the Journal, and a different set of numbers to Bloomberg. The news has to be good or bad, right? So which is it?

Well let's see here. On the plus side, FedEx delivered exactly the kind of numbers it promised us when it gave us a "peek at its package" back in July. At $1.20 per share, earnings for fiscal Q1 2011 more than doubled the company's Q1 2010 performance, and arrived toward the high end of guidance (advantage, WSJ). Granted, these earnings fell short of Bloomberg's projected $1.21 per share profit -- but they nailed the consensus $1.20 number reported on Yahoo! Finance. It's kind of hard to fault FedEx for that, and a little unfair of Bloomberg to be assuming that its number was the number to beat.

FedEx delivers
"Improved global economic conditions" helped FedEx reap "higher volumes and better revenue per shipment" than last year. Revenue of $9.46 billion grew 18% year over year, and because with higher volumes come better utilization and greater "leverage," FedEx was able to add 270 basis points to its operating margin for the quarter, which now stands at 6.6%. Long story short, FedEx did everything it promised us last quarter.

But that's not the point.

The point is that FedEx then promptly proceeded to walk back expectations for this quarter. Things are still swell in the FedEx Express segment -- good enough that the company's going ahead with plans to buy new Boeing (NYSE: BA) 777 freighters to boost business. Regardless, in contrast to the $1.36 that analysts were expecting FedEx to earn in fiscal Q2, FedEx now says it will earn between $1.15 and $1.35. Less comforting still, that bottom-end number could fall as low as $0.97 when you subtract the costs of its decision to combine FedEx Freight with FedEx National LTL, effective January 2011.

You see, it seems Stifel Nicolaus was right when it warned us about price competition in less-than-truckload weight shipping back in May, and how this might hurt FedEx more than UPS (NYSE: UPS). With rival shippers like Con-way (NYSE: CNW) and YRC Worldwide (Nasdaq: YRCW) fighting for their lives, FedEx's Freight division is now operating at a loss. To cut expenses and salvage margin, FedEx now needs to lay off some 1,700 employees at a cost of $150 million to $200 million.

Moral of the story: Being a great player in a bad industry isn't always a good idea.