FedEx Pretends The World Is A Vacuum (FDX, UPS)

The original headlines are showing the huge losses at FedEx Corp. (NYSE: FDX), but this is actually because of charges over at Kinko’s as its reverts to the full FedEx center name and restructuring there.  The bad news is that the news isn’t that hot elsewhere and the company is making its forecasts as though today is as bad as it gets.

The company’s loss was $0.78 after items, and on a non-GAAP basis the company posted $1.45 EPS on revenues of $9.87 Billion.  First Call was $1.47 EPS on $9.6 Billion in revenues.  Here is the outlook: FedEx is looking for $0.80 to $1.00 EPS for the coming Q1-2009 and it is targeting fiscal 2009 at $4.75 to $5.25 EPS.  First Call has next quarter estimates of $1.27 EPS and fiscal May-2009 at $5.84.

This forward guidance accounts for the high fuel price environment and the related impact on fuel surcharges, which the company says "are reducing demand for FedEx services and impacting yield across its transportation segments."  But as before, this projection ASSUMES NO ADDITIONAL INCREASES TO CURRENT FUEL PRICES AND ASSUMES NO ADDITIONAL WEAKENING IN THE ECONOMY. 

Unfortunately for the company, we don’t live in a vacuum.  This is also the first time that the company is noting a real reduction in demand and that is a good indication that this translates to lack of any pricing power and a lack of ability to pass on the higher costs of doing business.  It is really hard to imagine that this was going to be much different based on the company’s history.  Either way, Wall Street is greeting the company with a resounding thud this morning.

Shares closed at $84.33 yesterday and they are trading down at $80.45 in pre-market trading at 8:15 AM EST.  The 52-week trading range is $80.00 to $119.10.

This is also being viewed as a negative for United Parcel Service, Inc. (NYSE: UPS) as its shares are down over 3% in pre-market trading close to $65.00. Its prior 52-week low is also close at $64.01.

Jon C. Ogg
June 18, 2008