As we have written before, if investors want a leading indicator of economic headwinds and consumer spending patterns, they need not look much further than Federal Express (NYSE: FDX) and its leading competitor United Parcel Service (NYSE: UPS). If this theory holds true, as it has in the past, it is more than likely that the economy will remain stagnant for the time being.
FedEx announced that it was reducing its growth estimates for the coming year after its profits for the fiscal fourth quarter, ending May 31, came in lower than expected. This is primarily due to an increase in consumer activity failing to match the increase in the cost of doing business. The company, the second-largest commercial shipping firm in the world possessing the largest commercial airline fleet, has pledged to cut costs moving forward, which could indicate looming payroll cuts. The market seems to have responded positively to FedEx's announced adjustments as the share price increased $2.50 on Tuesday to close at $91.01.
Many industry analysts believe that the decline in total shipments, 5% in the fourth quarter, not only forebodes a slowdown in economic activity but also a shift in the industry as a whole. It appears that more and more consumers are turning to alternate means of shipping that, while they may not be as time efficient, are less expensive. In the uncertain economy, it appears many are placing less of a premium on time and more of an emphasis on price.
How will the economy react to this news, and what are the implications for the overall market?
While it appears that FedEx's pronouncements of reforming their corporate structure have been well received in the immediate, the drop in worldwide shipping volume could be a bad omen for the overall economy.
Below is a graph (Kapitall's Compar-O-Matic) comparing the market cap and average analyst recommendation of how to handle the stock and its leading competitor. Analyst ratings sourced from Zacks Investment Research.
Dan Connelly does not own any of the shares mentioned above.
