Transcripts

FedEx Delivers Dismal Quarterly Earnings

SUSIE GHARIB: Disappointing quarterly earnings at FedEx today raised new questions about the health of the U.S. economy. Because FedEx is considered a proxy for business activity, its results are being closely scrutinized. Excluding a one-time charge, FedEx earned $1.45 a share in its fiscal forth quarter, down sharply from a year ago and $0.02 below analysts' estimates. The package delivery giant also issued a weak forecast for fiscal 2009, citing high fuel prices. Shares of FedEx fell 2 percent. Suzanne Pratt reports.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: FedEx blamed the earnings shortfall squarely on rising fuel costs and the cooling U.S. economy. The nation's second largest package shipping company has been unable to raise fuel surcharges fast enough to keep up with rising energy costs, which have doubled in the past year. On top of that, FedEx customers are also getting squeezed by higher fuel prices, causing them to cut demand for FedEx services. Edward Jones analyst Daniel Ortwerth says the results suggest surging fuel costs may erode business for many industries.

DANIEL ORTWERTH, TRANSPORTATION ANALYST, EDWARD JONES: The impact of rising energy costs on the U.S. economy is more significant than surface level numbers tell us. There are deeper ripple effects that are very hard to quantify and that we might quantify until academia does it years from now.

PRATT: Particularly disconcerting to analysts was the company's negative outlook for fiscal 2009. FedEx said fiscal first quarter earnings would be $0.80 to $1 a share, much lower than the $1.27 analysts were expecting. JPMorgan analyst Tom Wadewitz, whose firm has done investment banking and other business with FedEx in the past year, says the one-two punch of oil and the anemic economy is behind the weak guidance.

TOM WADEWITZ, TRANSPORTATION ANALYST, JPMORGAN: I would say that the fiscal '09 guidance is based on more of the same of what we saw in fourth quarter and perhaps the margin impact resulting from the weak volume trend is greater than we had anticipated.

PRATT: The challenging environment that FedEx faces is reflected in its stock price. In the past year, the shares have fallen 25 percent, moving from $110 a share to about $82. Some analysts disagree on the outlook for the stock.

WADEWITZ: We rate FedEx "neutral" and I think we have concern that you are not going to see, really, drivers for earnings growth or earnings performance to pick up in the next couple of quarters.

ORTWERTH: For the disciplined long-term investor, this is a marvelous buying opportunity, because the company has the right business strategy, has a tremendous head start on anybody who would like to compete with them other than UPS and they have the strength to get through this storm.

PRATT: Analysts say one bright spot in the otherwise disappointing FedEx results was its international business; it grew at 6 percent in the latest quarter. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.