Good News From FedEx

Wall St sold down shares of FedEx (NYSE: FDX) after the company slashed its guidance for the third quarter. The company blamed bad weather and higher fuel prices. It did not say that its core business was anything other than robust.

“We experienced significant network disruptions in the U.S. and Europe and unusually high costs from severe winter storms. In addition, fuel prices continued to escalate since we provided our earnings outlook in December,” said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer. The company now expects as-adjusted earnings, excluding FedEx Freight combination costs, of $0.70 to $0.90 per diluted share for the quarter ending February 28, compared with its previous guidance of $0.95 to $1.15 per diluted share.

It is not surprising that investors would sell off FedEx shares even based on moderately bad news. FedEx share price was $40 a year and a half ago. The stock trades at $94 now, near a 52-week high.

But Graf added an important comment to his warning. “We continue to see strength in our base business across all transportation segments and geographies.” In other words, absent recent problems, the increase in demand for freight and package shipments is still rising. Graf did not say this was going to continue. But it will, if the past is any indication. An economic recovery is almost always accompanied by improved business spending, and shipping is at the core of that.

The economic recovery is uneven enough that it is easy to take any unsettling comment from a large company as proof that its fundamental business has succumbed to a drop in sales because of a weakness in demand. FedEx is not one of these cases. There was not anything in its warning to alarm Wall St.

Douglas A. McIntyre