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FedEx (NYSE: FDX), the delivery company that competes with United Parcel Service (NYSE: UPS), issued its Q4 earnings report on Wednesday. At first glance, it's scary. On a GAAP basis, FedEx said it lost $2.82 per diluted share during the quarter. You say to yourself, "Man, has the recession gotten worse!" Then you take a breath and see that the loss is sourced back to goodwill charges related to the Kinko's and Watkins Motor Lines transactions. Therefore, adjusting for those elements, FedEx earned $0.64 per diluted share.
You feel a little better as a shareholder when you realize the loss has some accounting context surrounding it. The bad feelings return, however, just like a package that you forgot to put postage on, when you check the results achieved in the year-ago period. You find out that FedEx earned $1.45 per diluted share at that time. Is there any saving grace now?
Yes, there is. Because, according to the earnings preview, you are happy to discover that analysts were only expecting $0.52 per share. And that means that FedEx delivered results beyond Wall Street's expectations. Unfortunately, we have to go back to the bad feelings after having our spirits raised. The preview says that Q4 sales should have been somewhere around $8.4 billion. FedEx missed, generating only $7.85 billion.
So that's the narrative. What does it all mean? It means that FedEx is still navigating the treacherous recession, and that the company will continue to be pressured to cut costs and remain as efficient as possible. It will be tough to grow in these conditions.
I find the reaction by the market interesting. Wall Street doesn't really want to buy shares of FedEx, but they don't really want to sell it too severely, either. As of this writing, the stock is down only 1.3% in afternoon trading.
I have a feeling that investors think FedEx will move up again after a pause. The stock certainly has bounced very vibrantly off its March lows, so I can see the merit of such thinking. Nevertheless, I couldn't buy FedEx at these levels. However, in the interest of full disclosure, I was completely wrong about FedEx last time. I was too scared about its short-term prospects. Well, I guess I'm saying the same thing this time, too. Maybe you'll make money going against my opinion. If you do decide to try FedEx, at least protect yourself with a stop. With the economy the way it is, volatility to the downside could occur with the shares at any point in this market...
Disclosure: I don't own any company mentioned; positions can change without notice.
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