FedEx (FDX), often regarded as a bellwether for the economy in general, struggled mightily in the last quarter. Shipping volume has been slipping as sales in a number of industries have taken a hit; FedEx reported a 5% drop in average daily volume. Net profit fell to 31 cents per share compared to $1.26 in this quarter a year ago and the Street was calling for 46 cents per share. The top line revenue number fell 14% to $8.14. In response to the dismal quarter FedEx plans to cut more than $1 billion in costs, largely from the Express unit. Express generally accounts for more than two-thirds of the company’s revenue, but sales dropped more than 18% in the quarter. Some of the cost cutting will invariable come in the form of job cuts and restricted hours for workers but specific details were not made available. CNBC’s Art Cashin expressed doubt that FedEx will be able to reduce costs as easily as say their main competitor, UPS (UPS):
“Its the make up of the business. FedEx has a lot of aircraft, the portion of their business that’s air freight is much higher than at UPS. UPS because of their ground network there are a lot of variable costs in that and their ability to take those variable costs out on any given day is higher than FedEx’s ability to remove aircraft on a whim out of the network. They can do that but it’s a little bit longer term problem.”
Furthermore, Fedex issued guidance below estimates for the fourth quarter: they offered guidance ranging from 45 to 70 cents while analysts had them pegged at 72 cents. The company did report that it was gaining market share as DHL has exited the U.S. market. Inexplicably, FDX stock is trading up more than 8% today after reporting disappointing earnings and weak guidance. The market seems to be responding positively to the gain in market share and also the volumes which were not as bad as they could have been.
