Saturday, 10 May 2008

Fedex Warns Again

Fedex gave good warning of a slowing economy last year when they began guiding earnings forecasts lower. The toll of higher oil prices have prompted yet another downgrade yesterday. From Bloomberg:

FedEx Lowers Profit Outlook, Cites Higher Fuel Costs

FedEx Corp., the second-largest U.S. package-shipping company, said fourth-quarter profit will miss its forecast after surging fuel prices raised costs by at least $100 million more than estimated.

FedEx will earn $1.45 to $1.50 a share in the quarter ending May 31, compared with its previous target of $1.60 to $1.80, the Memphis, Tennessee-based company said today in a statement. The shares fell 3.3 percent after FedEx said the slower U.S. economy is curbing express and freight shipments.

The rising price of oil, which set records every day this week, forced FedEx to cut its earnings forecast for the second time this fiscal year. Fuel costs, coupled with a possible recession in the U.S., are taking a toll on industries from airlines to delivery companies whose profits are more sensitive to economic downturns. United Parcel Service Inc., the largest U.S. shipper, last month lowered its forecast as well....

....For FedEx, the average earnings estimate of 14 analysts surveyed by Bloomberg was for $1.71 a share.....

....FedEx and UPS typically have a two-month lag in recovering fuel expenses through surcharges. In early May, FedEx boosted its surcharge on express shipments to 25 percent, from 20 percent.

``While we have dynamic fuel surcharges in place, they cannot keep pace in the short-term with rapidly rising fuel prices,'' Chief Financial Officer Alan Graf said in the statement.

The new outlook assumes no additional increases in fuel prices and no further weakening of the economy, FedEx said.

That last paragraph is interesting. So what if Oil goes to $150 and the economy doesn't rebound in the second half? We probably haven't heard the last downgrade from FedEx this year.