FedEx, the Economic Bellwether, Falls After Profit Forecast Trails Estimates

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FedEx Falls After Profit Forecast Trails Estimates (Update3)
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By Mary Jane Credeur

June 17 (Bloomberg) --

FedEx Corp. fell in New York trading after the second-largest U.S. package-shipping company forecast a quarterly profit that trailed analysts’ estimates amid an “extremely difficult” economy.

Earnings for the period ending in August will be 30 to 45 cents a share, FedEx said today, lagging behind the 70-cent average of 11 estimates compiled by Bloomberg. FedEx didn’t provide a full-year outlook.

U.S. air shipments tumbled for the 14th straight quarter as businesses curbed spending amid the worst unemployment rate since 1983. Analysts watch Memphis, Tennessee-based FedEx as an economic bellwether because it moves goods ranging from mortgage documents to auto parts to clothing.

FedEx faces the “most difficult economic conditions in our company’s history,” said Chief Executive Officer Fred Smith, who founded the company 36 years ago. Still, he told analysts on a conference call that “the worst of the recession is likely behind us.”

The shares dropped 84 cents, or 1.6 percent, to $50.58 at 9:34 a.m. in New York Stock Exchange composite trading. FedEx declined 39 percent in the year ended yesterday, worse than the 32 percent slide for the Standard & Poor’s 500 Index.

No Annual Forecast

“The operating environment for our first two quarters in fiscal 2010 is expected to be extremely difficult,” Chief Financial Officer Alan Graf said in a statement. He said FedEx lacked “enough visibility into the economic recovery” and jet- fuel costs for an annual profit outlook. The average estimate among 15 analysts in a Bloomberg survey is $3.26 a share.

The company’s economic assessment echoed comments by President Barack Obama, who said yesterday in a Bloomberg News interview that “it’s going to take a long time” for a full recovery even as “you’re starting to see the engines of the economy turn.”

FedEx said profit was 64 cents a share for the fourth fiscal quarter ended in May, excluding writedowns to trim the value of buying Kinko’s Inc. and Watkins Motor Line. Results on that basis beat the 51-cent average of 13 analyst estimates.

When those costs and expenses for employee severance and reducing the value of aircraft are included, FedEx had a net loss of $876 million, or $2.82 a share. It posted a net loss of $241 million, or 78 cents a share, a year earlier.

Drop in Revenue

Fourth-quarter revenue declined 20 percent to $7.85 billion, FedEx said. U.S. express package volumes fell 2 percent and international priority deliveries, one of the company’s most-profitable offerings, plunged 12 percent.

The slide in U.S. express shipments was the smallest in five quarters, an indication that the rate of decline “appears to have leveled off,” Smith said.

United Parcel Service Inc., the world’s biggest package- shipping company, has been experiencing similar headwinds. Consumer demand is holding up better than business-to-business deliveries in the recession, CEO Scott Davis said yesterday in a Bloomberg Radio interview. UPS’s domestic shipments slid 4.3 percent in the first quarter.

Analysts were expecting the asset writedowns, which FedEx announced on June 3.

FedEx bought Kinko’s, now known as FedEx Office, in February 2004 for $2.4 billion and purchased Watkins in September 2006 for $780 million. The writedowns are for goodwill, which is the difference between what FedEx paid and the fair market value of the assets acquired.

To contact the reporter on this story: Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net
Last Updated: June 17, 2009 09:38 EDT

 

amid an “extremely difficult” economy....


That's FedEx speak for "this economy SUCKS and is deteriorating rapidly, no matter what the asshole analysts and brokers with no skin in the game but OPM tell you."

And a big F**k You! to Larry Kudlow, too.