FedEx (FDX) earnings: Good news, bad news

Posted Sep 20th 2007 9:23AM by Beth Gaston Moon
Filed under: Before the Bell, Earnings Reports, Bad News, FedEx Corp (FDX)

FedEx (NYSE: FDX) reported first-quarter earnings this morning, and the short-sighted investor would be pleased by the results. Net income in the latest reporting period moved 4% higher to $494 million, or $1.58 per share, up from year-ago profit of $475 million ($1.53 per share). Sales, meanwhile, rose nearly 8% to $9.2 billion. Both headline numbers topped Wall Street's estimates for per-share results of $1.54 on sales of $9.08 billion.

Looking forward, however, the shipping giant lowered its forecast for the second quarter and for fiscal 2008. In the second quarter, FedEx expects to bank per-share earnings between $1.60 and $1.75, south of the $1.95 per share currently expected by analysts. For the full year, the firm targets earnings per share in the $6.70 to $7.10 range, missing the consensus view of $7.19 and the company's own prior guidance of $7.00 to $7.40.

Capital spending is expected to hit $3.5 billion, with about 70% targeted for growth. These figures are reportedly under review, however, and if certain capital outlays can be deferred, overall spending will decrease for the year.

In an accompanying statement, FedEx Chief Financial Office Alan B. Graf Jr. noted that "While the U.S. economy is growing at a moderate pace, recent financial market volatility and high energy costs have increased the uncertainty surrounding the near-term economic outlook, and weakness in the housing sector continues ... as a result of this weaker than anticipated economic environment ... we have reduced our earnings forecast by 4% for the full year."

FedEx is lower in pre-market trading and is expected to drop in early action. According to my colleague Jocelynn Drake, a "gap could put the equity below key support at the 106 level, which has served as a key layer of support since April." A collective exit from bullishly aligned options positions could accelerate the selling pressure.

Beth Gaston Moon is an analyst at Schaeffer's Investment Research. She does not own any FedEx shares.

Tags: earnings, FDX, fedex, inthenews