If FedEx and Cintas Fail, We Fail
Yesterday was a bad day for FedEx and Cintas investors, but it may also mean that we're all having a bad day.
Shares of FedEx and Cintas tumbled 7% and 4%, respectively, yesterday. The speedy package delivery giant and the leading supplier of workplace uniforms slipped after posting disappointing quarterly reports.
FedEx and Cintas both reported quarterly profits that were short of Wall Street expectations. You have to go back more than three years to find the last time that Cintas fell short on the bottom line. The economy was in pretty sad shape at the time. FedEx investors don't need to jog their memories as hard. The overnight delivery specialist with the world's largest air express fleet also missed three months ago.
FedEx saw its revenue climb 4%, but profitability plummeted 31%. Cintas saw revenue climb 6%, but operating profits and net income declined.
FedEx blames the bottom-line shortfall on its international customers switching to slower and cheaper options where the margins aren't as beefy as its premium-priced next-day service. Cintas blames its margin crunch on higher costs -- material cost amortization and increasing its route capacity -- on a boost in new customers.
The news would appear to be mixed. FedEx customers are shaving costs. Cintas has to invest in its growth. However, both companies ultimately offered uninspiring near-term outlooks.
Did you really think that Cintas' stock would fall if its only problem was a deluge of new leads?
Investors shouldn't dismiss these two disappointing reports. FedEx and Cintas are bellwethers. They are smart ways to gauge the pulse of corporate America.
Cintas serves more than 900,000 businesses with more than just freshly pressed uniforms. FedEx offers a more global snapshot, but it's still at the mercy of the economy. If FedEx and Cintas aren't doing so well, it's a pretty safe bet that the economic recovery isn't humming along as well as we've been led to believe.
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The article If FedEx and Cintas Fail, We Fail originally appeared on Fool.com.Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Cintas and FedEx. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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