“And in what could be viewed as another positive for the economy, FedEx says its busiest day this year will also be its busiest day ever. They expect to ship more than 13 million packages on December 14th. The company says it will add 14,000 part-time workers to handle the holiday rush. Shares have been trading to the upside, up over 1%.” — CNBC’s Street Signs 11/10/2009

According to an emailed statement put out by the company, FedEx (FDX) is ramping up operations in anticipation of a record holiday shipping rush.  Estimates from the company are claiming that somewhere in the neighborhood of 13 million packages will be shipped in the busiest shipping day of the year, which if true would make it their busiest day ever.  This would be an increase of 8% from last year’s busiest day.  The projection of 50 million packages for that week is an increase of 11 percent increase over last year.  FedEx, headed by a respected economist Fred Smith, cited conversations with large customers, a return to growth in GDP, and increased industrial output among their reasons for optimism.

FedEx has seen volume increase recently thanks to a closer relationship with the U.S. Postal Service and the exit of competition DHL from the U.S. market.  However, revenue is just starting to recover after four straight quarterly declines.  With the new projections in place, it is very likely that this quarter will buck that dismal trend.  Prior to the announcement of FedEx’s expectations, analysts were anticipating revenue would come in at about $8.1 billion or just about flat from a year ago.  That number would seem to be well within reach if reality does in fact mirror expectations.  Morgan Stanley (MS) raised its estimates for FDX this morning due in large part to general economic improvements.

Shipping gifts around the holidays is always a crucial time for FedEx, and today’s statements from the company are an encouraging sign for holiday sales.  FedEx holds an important place as an economic indicator as the second largest shipping company in America, and retailers can only hope that they will live up to the upbeat forecast.  That being said, shipping volume increased last year even though retail sales were largely a disappointment.  The forecast from FedEx will not necessarily equate to great sales performance in general.  It might be reasonable to expect that more gifts and goods will be shipped this year than ever before, but they also may be cheaper than in the past.

We currently rate FedEx as Fairly Valued at the current price level.  This stock is currently sitting comfortably within the historically normal ranges of price-to-sales and price-to-cash earnings.  The prospects for the company do seem to be improving along with the economy, but we believe there are better bargains available to investors.

“And then there was the FedEx news that broke about 20 minutes ago or so that really gave a lift to the futures. Preliminary results for the first quarter will exceed expectations and, also, raised their outlook for the second quarter.  FedEx is going to open up, but the question is what is it going to mean for the overall market? Is it going to be enough with the other things to give us six days in a row on the S&P.” — CNBC’s Squawk on the Street 9/11/2009

FedEx (FDX), long viewed as an economic bellwether, has announced today that profits will likely be better than expected.  Up until now, FedEx has been very cautious about prematurely declaring the turnaround in their business is underway, but today’s lift to guidance is a much anticipated sign of confidence.  Analysts had pegged the company to earn just 44 cents in their fiscal first quarter which ended in August, but FedEx has raised their own expectation to 58 cents per share.  That would still be about 53% lower that last year’s profit on a per share basis, but the results are not as dire as originally thought.

 FedEx also sees fit to lift their view of the second quarter which is just beginning.  The Wall St. consensus was for earnings of 70 cents in the quarter, and the new guidance is for earnings of $.65 to $.95 per share.  In the company’s press release for the announcement, management states that the improved earnings performance reflects the outlook for fuel prices as well as, “the continued modest recovery in the global economy.”  Among other highlights from the quarter was the ever present cost cutting measures, and additionally, international priority shipping was better than expected.  However, full details on the quarter won’t be available until Thursday of next week.  The upbeat guidance is a great sign though, and the stock is up more than 6% at midday.

We see this development as a positive for both FedEx and possibly a slightly bullish indicator for the economy.  FedEx and UPS (UPS) rely so heavily on other businesses making transactions, and the fact that they are starting to see a slight uptick in earnings and at least some categories of shipping volume is a indication that goods are moving.  FedEx stock has rallied strongly over the past few weeks, but we are reiterating our Fairly Valued or neutral rating on shares at this point.  We think that FedEx may have turned a corner, but they are still dealing with serious declines in earnings and double digit declines in sales from a year ago.  At this price, we are not advocating buying because even the improved outlook still looks pretty weak compared to just a year ago.

“They’ve seen some improvement in some segments and freight volume is obviously weak and trying to balance out cutting back salaries and workers with the overall global economic recovery to very difficult things for the the outlook for FedEx gloomy.” Fox Business Network 6/17/2009

FedEx Corp. (FDX) has struggled with a sagging economy as earnings are down 56% from last year.  However, the company easily cleared the low bar that Wall Street analysts had set for the company.  Fiscal fourth quarter earnings were $.64 versus consensus estimates of $.51.  Revenues dropped 20% from a year ago to $7.9 billion, dragged down by declines in FedEx Express and FedEx Freight division.  Surprisingly, FedEx Ground was one of the bright spots as revenue only declined 1%.

The company’s CEO Fred Smith, a respected economist in his own right, said for the second straight quarter that the company has seen the bottom.  Yet his attempted optimism was overcome by the grim outlook the company issued for the first two quarters of fiscal 2010.  FedEx is expecting to earn between $.30 and $.45 in the next quarter, which is well below the street’s forecast of $.68.

Clearly, this gloomier outlook is a cautionary signal to the rest of the economy, as FedEx’s revenue is driven by sales of other company’s products.  If FedEx is correct in their assessments the recovery might not be as quick as many had hoped or expected.  Based on the historical valuation ranges FedEx is Undervalued and could trade in the mid-$60’s given what the market has traditionally been willing to pay for FedEx’s sales and earnings.  Even though the next few quarters are admittedly going to be rough for the company at some point in the future FedEx will attract the interest of value hunters.  The company will continue to be the standard in shipping and once an economic recovery begins then FedEx’s revenue will perk up with it.  But as our readers can attest, we are skeptical that the recovery will be hear in the next few months.  So, if you are interested in FedEx perhaps wait for the price to dip even further and then it will be a good stock to buy and hang onto for a while.

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.

In yet another sign of the times, two of the biggest headlines on the Wall Street Journal online today were stories about companies cutting costs at the expense of employee compensation. First, in light of the worst economy that the company has seen in its 35 years, FedEx Corp. (FDX) is trimming more than $1 billion in costs with much of that coming straight from employee paychecks. The largest cuts will come from the largest salaried employees, with the CEO taking a 20% haircut. This is a sign of the times as the international freight and shipping company has experienced negative revenue growth as global trade slows and the big drop in fuel prices has not been sufficient to overcome the overall slow-down in business. FedEx reaffirmed its full year profit guidance of $3.50 to $4.75 a share but, given the uncertainty of the near term, refrained from issuing guidance for the next quarter.

This follows a clear trend as companies throughout the economy are slashing personnel costs by either reducing their workforces or paring back compensation for those still employed. According to Bloomberg, Goldman Sachs (GS) just slashed average compensation by an unbelievable 45% and some bonuses may be down as much as 80%. It would appear to me that employees at Goldman or FedEx should prefer weathering the storm with lower pay rather than no pay at all, which many companies are having to do in order to reduce payroll expenses. Employees have little leverage in this job market and most know it. Unemployment is rising and, unfortunately, I expect to hear more daily announcements of corporations reducing staff across the board for some time to come.

In a far more creative offering and one that has not gotten a lot of attention, Credit Suisse (CS) plans to give away mortgage-backed and other illiquid securities as bonuses this year. Now that is bold! The toxic assets that the bank cannot unload on the free market are to be allocated to employees via bonuses. However, employees will potentially be required to pay taxes on these “bonuses”. The plan will give managing directors and directors a stake in up to $5 billion or around 13% of the bank’s collective risky debt. A source was quoted as saying the debt will be comprised of 60% buyout loans and 40% mortgage-backed securities.

On the surface, it sounds like a pretty raw deal for Credit Suisse employees, but the firm has developed a clever solution that has the potential to be a winner for all parties. Obviously, over the short-term, the bank gets to remove some of its most risky debt from the balance sheet while both preserving precious capital and maintaining its high-level-employee bonus structure. Had the bank wanted to give out traditional cash bonuses–a PR challenge in this era of government bailouts– then employees would have to expect that the amounts would have been greatly reduced, even in a best-case scenario. Employees stand to benefit greatly over the long-term from this package, if the economy can regain its footing and these currently-toxic assets return to a more favorable valuation. If this program eventually works out well for the employees, Credit Suisse may also benefit from better employee morale and loyalty in future years. Remember, Credit Suisse has already cut some 10% of its staff as a result of painful loss of 3 billion Swiss Francs in just the first two months of the 4^th quarter.  Surviving staff, probably top performers, could use some good news at this point.

I applaud the ingenuity of CS management for making lemonade from lemons, so to speak. The risks are minimal to employees who could not have been expecting much from the struggling firm this year; however, the potential reward could be a nice perk for patient employees. I would not be surprised to see more financial institutions with gobs of illiquid debt consider similar creative plans to spread their risk among their employees.