FedEx’s performance suggests the slump investors expect may not depress share values.Fred Prouser/Reuters
FedEx Corp. will offer insight into the state of the global economy Tuesday, when the air freight and express package delivery giant announces fiscal first quarter earnings before the markets open.
The outlook is unlikely to be pretty. FedEx ships pretty much everywhere, often on short notice, making its results unusually sensitive to such factors as the slowing Chinese and U.S. economies, and Europe's developing recession – and meaning its performance is a bellwether for the global economy.
The company, figuring it was going to disappoint investors in the quarter ending Aug. 31, announced in early September that conditions had recently worsened and that it would miss earlier guidance.
Earnings are expected to be in the range of $1.37 (U.S.) to $1.43 a share, below the $1.46 level of a year ago. Even worse, the figures are substantially below the company's original forecast range of $1.45 to $1.60 a share. Additional information on the trends the company is facing will be available with the earnings release.
Given the company's outlook is for weaker earnings, optimists might take note that FedEx's share price hasn't tanked in light of its earnings preannouncement. The stock did drop nearly $2 a share to $85.80 after the reduced guidance was made public, but it has been on the rebound, more than making up the loss.
The good performance in the face of adverse news suggests that even if the global economy weakens, the slump that investors expect may not be severe enough to depress share values.
To be sure, the U.S. Federal Reserve and the European Central Bank both helped by loosening monetary policy last week, which may be leading to hopes that the current economic soft patch will be short lived.
But FedEx may be being buoyed by other factors. One of television's most flamboyant stock prognosticators, Jim Cramer, recently called FedEx a buy, arguing that investors should flock to high quality blue chips buffeted by bad news.
His investment thesis is that good companies get undeservedly knocked down when they report a temporary dip in earnings, providing an excellent entry point for long-term investors.
While Mr. Cramer often is off the mark, he may be onto something with FedEx. Despite the weakening economy, mainstream analysts love the company.