Analysis: FedEx Earnings and the Amazonian Elephant
Good news for FedEx Corp. isn't always good news for the U.S. economy. As the world's largest cargo airline and a major provider of parcel delivery services, FedEx's business touches many industries, from consumer goods to pharmaceuticals, making its results a proxy of sorts for how the broader economy is doing.
The $43 billion company's earnings released late March 16 show that it still is that same economic bellwether — just not in the way you might think. FedEx lifted its earnings forecast for the fiscal year ending this May to $10.70 to $10.90 a share, up from $10.40 to $10.90. That, along with a third-quarter beat, helped put the stock on track for its biggest gain since 2002 on March 17.
At the same time, though, FedEx lowered its projections for global and U.S. GDP growth. It now sees the economy expanding 2.2% domestically and 2.5% globally in 2016; compare that with forecasts of 3.1% for each last March.
That echoed the Federal Reserve's less enthusiastic take on global growth this week as officials held off on raising borrowing costs and lowered expectations for how much interest rates will increase this year.
What gives? The answer is cost cuts and e-commerce. The industrial companies that will thrive in this period of low growth are those that focus on execution and take the necessary steps to improve profitability.
Companies from Honeywell to General Electric have used cost cuts to keep earnings growth chugging along. FedEx is part of that club, crediting a $1.7 billion cost-cutting program that is nearing completion for part of the rosier profit outlook. As for the latter, e-commerce shipments have pushed volume growth above what would be indicated by the economic backdrop, helping to deliver record revenue.
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|By Brooke Sutherland|
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