Business Is Booming at FedEx
On Monday, FedEx (NYS: FDX) predicted that it will grow package volume 12% this Christmas season -- and it was off to the races.
The news lit a fire under FedEx's stock, which jumped 3% for the day. It seemed to debunk reports, circulated earlier this month, about a sudden and dramatic slowdown in commerce in the U.S. -- reports of barren ports along the West Coast, and empty highways further inland. And since FedEx, alongside archrival UPS (NYS: UPS) , is considered a sort of "bellwether" for the economy at large, the broader Dow Jones Industrial Average (INDEX: ^DJI) notched strong gains as well, up nearly a percent. Great news, right?
Lost in all the enthusiasm over FedEx's announcement were two crucial facts: first, that the bulk of the package growth that FedEx foresees later this year comes from the firm's "SmartPost" residential service, in which FedEx hires USPS to deliver its packages along the "last mile" to residential households. Problem is, FedEx only makes about $1.76 per package off SmartPost deliveries -- as opposed to, for example, the average $62.30 per package it collects for "international priority" shipments.
Secondly -- and partly a result of the first point -- FedEx confided to investors that even if shipping volume is up because of SmartPost, this expectation was already baked into FedEx's frightening forecast for Q4 earnings last quarter. So if you were hoping that greater volume would beget greater profits -- don't.
What's an investor to do?
That's not to say there's no good news in FedEx's update this week, however. In fact, I think if you read between the lines, you can find some valuable intel in this report. Consider: According to the National Retail Federation, retail sales at bricks-and-mortar merchants are only expected to rise 2.8% this holiday season. But if that's true, how is it that FedEx is shipping 12% more boxes?
The answer is obvious: If people are shopping more, but they're not doing it in person, at retail stores, then they must be shopping online. It sounds to me like everything FedEx is seeing points to a bumper sales season for the likes of Amazon.com (NAS: AMZN) , eBay (NAS: EBAY) this year, as consumers work hard to dodge state sales taxes and stretch every dollar, pinching every penny till it screams. This isn't necessarily great news for FedEx -- but there are certain to be some winners from this trend.
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At the time this article was published Fool contributorRich Smithowns no shares of any company named above. You can find him on CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 327 out of more than 180,000 members.The Motley Fool owns shares of UPS and FedEx.Motley Fool newsletter serviceshave recommended buying shares of FedEx, eBay, and Amazon.com. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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