FedEx's Critical Read on the Global Economy
Tomorrow, FedEx will release its latest quarterly results. But more than many companies', FedEx's results will indicate not just the success or failure of its business but also general levels of business activity throughout the world, shedding light on the key question of whether a global economic recovery can truly take hold given current conditions.
FedEx has gotten used to the challenges of dealing with sluggish economic conditions. With a variety of cost-cutting initiatives, the transportation giant has done a good job of getting the most from the revenue it generates. Let's take an early look at what's been happening with FedEx over the past quarter and what we're likely to see in its quarterly report.
Stats on FedEx
Analyst EPS Estimate
Change From Year-Ago EPS
Change From Year-Ago Revenue
Earnings Beats in Past 4 Quarters
Source: Yahoo! Finance.
What will FedEx's earnings say about the economy?
Analysts have gotten markedly less enthusiastic in recent months about FedEx's earnings prospects, cutting their May-quarter estimates by a dime per share and reducing their full-year fiscal 2014 estimates by more than $0.45 per share. The stock has responded negatively, falling nearly 10% since mid-March.
FedEx has been going through an extended phase of restructuring lately, with the recognition that the changing global economy requires some consolidation of its business. Between slimming down its air-transport network and offering voluntary employee buyouts to reduce unnecessary staffing, FedEx has started to make itself more efficient going forward. Moreover, the greater emphasis on ground transportation puts it in more direct competition with UPS , allowing FedEx to prove its mettle against its chief rival.
Cost-cutting measures remain exceedingly important for FedEx. Earlier this month, the company said it would retire some of its older aircraft and replace them with more fuel-efficient planes. Boeing is keeping its 767 production line in operation solely to serve FedEx's needs, with its order for 50 aircraft to replace FedEx's existing Boeing 727 planes, as well as MD-10 and Airbus A300 and A310 aircraft. Yet FedEx expects to pass on some of its costs to customers. As of July 1, FedEx will implement a 4.5% rate increase throughout most of North America for its freight division, noting that its freight fuel surcharge remains much lower than that of most of its peers in the business of shipping quantities of goods that don't make up full truckloads.
FedEx scored a major win during the quarter, with the company extending its current contract with the U.S. Postal Service for another seven years. The $10.5 billion contract allows FedEx to provide the air-transport portion of deliveries via Express and Priority Mail, leaving it to the USPS to handle getting packages from the airport to your door. The collaboration has been valuable in helping FedEx compete with UPS in the most cost-effective way possible.
In FedEx's report, watch for any commentary the company has on the trend toward same-day shipping. With online companies looking to coordinate with local businesses to facilitate quick delivery, FedEx might get cut out of the loop, and so how the company plans to respond could be critical in showing whether FedEx sees this as a viable threat.
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The article FedEx's Critical Read on the Global Economy originally appeared on Fool.com.Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends FedEx and United Parcel Service. 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.