by Dan Burrows | December 18, 2013 12:59 pm
FedEx (FDX) ships so much stuff for so many industries in so many countries that the company (and to an extent, FDX stock itself) is rightly seen as a bellwether for the global economy.
Unfortunately, when it comes to telling us what’s going on in the world, quarterly results at FedEx are stuck on repeat.
For a long time now, the message from FDX has been the same: Global economic growth is uneven and sluggish. At best.
FedEx has been dealing with the low-demand landscape through cost cuts and price hikes — and, for the most part, it has done admirably well.
However, with more shippers foregoing FedEx’s premium air-shipping services (they’re literally opting to take the slow boat from China), FDX has had little choice but to take planes out of service and raise some rates.
The result is that management has gained enough credibility in navigating sluggish global growth that even the latest disappointing quarterly report didn’t slam FDX stock.
FedEx earnings for the fiscal second quarter actually missed Wall Street’s estimate by a fairly wide margin. Although FDX earned $500 million, or $1.57 a share, compared with $438 million, or $1.39, in last year’s second quarter, EPS missed analysts’ average forecast by 7 cents.
Slower volume expansion in the ground shipping business was likely to blame, even as last year’s Hurricane Sandy made for easier comparisons.
FedEx stock dived at the open, but soon recovered. And well that it should. The market knows that global growth stinks and that’s going to continue to weigh on FedEx — and cause some volatility for FDX stock — for a while. However, more important is how FedEx and its cost structure is positioned for an eventual pickup in growth. And on that count, management has indeed done its job, setting up FDX stock for outperformance over the longer term.
FedEx’s operating margin — an indicator of cost control — rose significantly for the quarter. And in more evidence that FDX is on the right track, FedEx raised its full-year outlook. Once the market digested that news, FDX stock was essentially unchanged in midday trading.
As we’ve noted before, FedEx management is doing a good job guiding FDX through a prolonged period of anemic global growth. Eventually, you figure Europe, Asia and emerging markets will start to pick up. (We’ve already seen some improvement in Europe.)
Add in the benefits of a multiyear cost-cutting program and FedEx share repurchases, and FDX stock should continue to deliver market-beating returns in the long run.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
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