What Is FedEx Telling Us About The Global Economy?

Pragmatic Capitalism ^ | 12-20-2012 | Cullen Roche

[blam]

What Is FedEx Telling Us About The Global Economy?

12/20/2012 3:04 AM
Cullen Roche

Everyone always thinks that Alcoa kicks off the earnings season, but I don’t see it that way. The real earnings season kicks off with FedEx who usually reports well in advance of Alcoa and gives us a much more meaningful look into the state of the economy. So what’s the global bellwether telling us? Here are some of the key highlights from their earnings report yesterday and the conference call:

■ Guidance for the full-year was in-line with expectations after last quarter’s big cut. That could mean things are a bit more stable. The outlook certainly isn’t deteriorating much.
■ Mike Glenn said they still see growth in the global economy:

“We continue to see modest growth in the global economy with our forecast for U.S. GDP calling for 1.9% growth in calendar year ’13. For industrial production, we expect a growth rate of 2.4% in calendar year ’13. This is slightly lower than our prior forecast, primarily reflecting a lower entry point in FY ’13 due to Hurricane Sandy. Our global GDP forecast is 2.5% in calendar year ’13. And finally, I just want to emphasize that the calendar year ’13 outlook could swing either direction depending upon policy outcomes, especially with the fiscal cliff issues in the U.S. and certainly issues in Europe.”

■ The European economy remains “weak”.
■ High oil prices remain a big risk to their expenses and margins.
■ Political uncertainty is not helping matters:
“the mounting uncertainty in the U.S. related to fiscal policies and their potential to impact earnings by further restraining economic growth is a concern.”

■ Operating margins were down just slightly.
■ Revenues were decent at 5% year over year.
■ Total US Domestic package shipments were down -2%.

This is an improvement over the last two quarters and more consistent with the low, but not negative economic growth we’re seeing in the US at present.

[frogjerk]

[Arm_Bears]

I deal with a great deal of documents in my business, and have noticed a progression over the years that I believe may undermine the “FEDEX Index” the author describes. (I also believe that it doesn’t bode well for FEDEX.)

Back in the early 2000’s, I received most of my documents in hard-copy format in file boxes delivered by FEDEX. In the late 2000’s, my documents started to arrive in electronic format on discs inside of FEDEX envelopes. These days, virtually all of my documents arrive via e-mail in compressed form—FEDEX is completely out of the picture.

5 file boxes of hardcopy documents shipped to me = FEDEX makes money

5 file boxes of documents converted to PDF and e-mailed to me = FEDEX doesn’t make money

[Vigilanteman]

Documents are a very small part of FedEx's business now, generally for those times when original signatures are demanded. They mostly delivery small and medium sized packages. I believe the FedEx index is still a very good leading indicator of the economy.

In addition, FedEx is rapidly becoming competitive with UPS on a growing number of shipping lanes and actually beating them on a few. Our company probably puts about 20% of our less than pallet load shipments with FedEx, not just to preserve our competitive options for this type of business but because FedEx generates a far lower damage claim rate than UPS.

It could have something to do with more careful handling due to roughly equal infrastructures and less volume. I think it may have even more to do with UPS being unionized and FedEx not being unionized. When people are promoted by individual job performance as opposed to union rules, they perform better.

[Coldwater Creek]

FedEx dosen’t make money, my town, Memphis, Tennessee folds up............