FDX has taken a number of action steps that clearly indicate concern about revenues and profitability. While reeling from a $.15 miss last quarter, it would seem the prospects for the upcoming report within the next 2 weeks is bleak and the forward looking data is not inspiring. Some of us have been warning that analyst expectations for FDX are unrealistic particularly the fact that despite a difficult recent report current expectations seem unreachable. To review, it's reasonable to expect that when a company accelerates already aggressive aircraft retirement plans, it projects weakness in the international and express segments. That translates into decreased revenues and diminished margins as customers continue to choose less timely methods for product transport. Throw in the express service employee headcount reduction program and that tells a big story. Considering this is their most lucrative revenue source, how can analysts not reconsider their EPS and revenue calculations? In the last 60 days, analyst consensus has dropped a sum total of 1 penny. This despite alarming China GDP and economic growth data and the ongoing expectations that this will impact U.S. multinational companies. At this juncture, FDX's forward P/E is based upon an expected earnings of $7.41 for their FY starting June 1 and finishing May 31, 2014. That would require a 22.5% earnings increase over what I maintain is an unreachable $6.05 for this year (their screwy FY 2013 ended last month).
Folks, I actually hope I'm proven wrong on all this because a FDX miss is not good for UPS in any way. The reasons for a miss will be shared by us to a large degree. Luckily, we have a more consolidated delivery network that is more domestic-centric. Our air fleet has been modernized ahead of the FDX schedule so our fuel savings have been in play for longer. Just like FDX, we have cut air lift capacity but did not choose to
pursue the low margin USPS business. Regardless, it's an incredib
Might as well reply to myself. Surprisingly, despite every reason for FDX shares to be dumped for the reasons I spelled out in the first posting, the market currently reads the tea leaves otherwise. Today's headlines should have impacted the transports emphatically. Thus far at least, this has not been the case. I still look for a substantial FDX miss next Wednesday with a guess of about $.10. Again, I sincerely hope I'm wrong and if so, things will be looking up for UPS shares. As it is, both companies are trading within shouting distance of their 5-week highs albeit UPS is much closer. Could it be the FDX "momentum" is based around their huge 1 penny dividend increase?