FedEx Corporation (FDX) released third-quarter earnings on Thursday that fell short of analysts’ projections. Earnings per share were reported at 31 cents while forecasts were for earnings of 46 cents. Profits declined more than 75% from the year earlier period.
Revenues were also down for the global package delivery company, falling off 14% from the previous quarter and nearly 15% from the December to February period of last year. Operating margins were down from 6.8% to 2.2%.
On Thursday, the stock climbed on increased volume, as investors reacted with glee hoping that the “positive” statement on the economy would suggest an overall market bottom. While the indexes were hammered later by the higher than expected increase in jobless claims, FDX held on to its gains.
Today, FDX gave back all of yesterday’s gains and then some and is down almost 8 percent in afternoon trading on heavy volume.
Chairman, President and Chief Executive Fred Smith’s comments that “… there are positive signs of an eventual improvement in the economy,” and that … we do not expect further declines in the GDP in 2009″
Smith was not exactly going out on a limb with those statements, yet the price for FedEx stock increased by more than $2 after the announcement.
FedEx late last year announced a series of cost reductions focused primarily on personnel expenses, with CEO Smith taking a 20% cut, other executives having salaries reduced by 7.5% to 10% and a large portion of the remaining 290,000 employees of the company losing 5% of their pay. Additional cuts were accomplished through the temporary cut in the 401K match.
Smith announced that FedEx would be undergoing additional expense reductions to address the continued slump in business, but did not provide specifics.
Federal Express and United Parcel Service (UPS) have been battling the last several months to capture the former customers of DHL, which withdrew from the North American market. The companies have in part competed on the basis of costs, which contributes to the reduced margins at both firms.
The overland package delivery companies are frequently harbingers of change in the economy, as they are early indicators of demand. Investors can only hope that the vague statements made by Smith signal a bottom for the economy.
This article was written by Jamie Dlugosch, contributor to InvestorPlace Media. For more actionable insights likes this, visit www.InvestorPlace.com.
