Anyone who pays any sort of attention to the stock market could see this one coming a mile away. The earnings report by FedEx Corp (FDX) was another disappointment in a long line of earnings season lackluster results.
You knew–just knew–that the company would disappoint the Street. Thankfully, the shares weren’t beaten up too bad, taking a pretty modest 2% hit in the day’s trading.
Blame Sky-High Fuel Prices
As usual, we can thank soaring oil prices and a weak U.S. economy for the lackluster results (see, “Recession-Busters: Dividend-Paying Stocks” for ways to invest in these turbulent times). FedEx said its fuel costs for its fourth quarter were 54% higher than a year ago, while the fuel surcharges it collected were up less than 30% as the company doesn’t want to hurt its customer too much while investing in long-term customer relations.
FedEx has taken steps to reduce its eps guidance as a result of fuel prices, and has said that its outlook for the new fiscal year “assumes no additional increases to current fuel prices and no further weakening of the economy.” Stand-by for future earnings revisions.
However, the question everyone is asking, “If fuel prices rise, will businesses look for other way to ship their goods?”
Analysts and investors need to simply wait and see since gas prices are also adversely affecting the bottom-line of FDX’s major competitors, like UPS (UPS) and DHL.
FDX: Flying in the Gale-Force Winds
I can’t help but like FedEx. It’s a well run, financially-healthy company that is basically a proxy for the U.S. economy. As usual, the problem is… the U.S. economy. We’re facing gale-force headwinds and FDX’s stock is grounded on the tarmac.
If investors are truly interested in building a position in FDX, dollar-cost averaging the way to go. Shares are too high right now and can be bought at much lower prices. Investors who don’t want to take the dollar-cost averaging route should wait on the sidelines for the winds to die down.
“It’s my opinion that great companies always improve their competitive positions in economic downturns,” said chairman and CEO Frederick W. Smith, “and we intend to do just that.”
FedEx undoubtedly has the financial strength to weather this storm. It will continue making significant investments in more fuel-efficient aircraft and continue to grow its international business.
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