When UPS (NYSE: UPS) warned on earnings, no one should have been surprised, but it was something of a death of hope. Rival Fedex (NYSE: FDX) has already said it would be a bad year. UPS waited a week. Then, it admitted higher fuel prices and slowing customer orders were doing it substantial harm.
According toMarketWatch, "The package-delivery giant cut its second-quarter profit forecast to a range of 83 cents to 88 cents a share. In late April, UPS had expected to earn between 97 cents and $1.04 a share." At least the company will make money.
Perhaps that is the key. At least it will make money.
Even with skyrocketing oil prices, many large US companies have done such a good job driving up productivity over the last year that they can do relatively well as inflation undermines their gross margins. It is that productivity which may save some large American firms from disaster and keep stronger companies in a relatively good position.
The Bureau of Labor Statistics revised Q1 productivity upwards to 2.4%. This makes it less necessary for business to raise worker compensation. That, in turn, keeps costs down.
And, companies like UPS can still make money.
Douglas A. McIntyre is an editor at 247wallst.com.
Recently, I was shopping for a couple of books on half.com. However, having spent about a half hour in my search, I decided, at the last minute, to forego my purchases. While the sellers were offering great prices, the shipping raised the books' costs to above what I would pay in a local bookstore. In the end, it just wasn't worth it.
As the price of gas goes up, so does the price of postage. While this hasn't been much of a concern with the U.S. Postal Service, private carriers like DHL, UPS (NYSE: UPS), and FedEx (NYSE: FDX) all pass the cost of fuel on to their customers. For example, at the end of 2007, UPS was tacking on a 4.75% gas surcharge for ground deliveries. Right now, it's 8.5%, with an even higher price for express shipping.
Some retailers are fighting back with free shipping or a flat fee for unlimited shipping. Unfortunately, while these deals may draw in customers, they chip away at the sellers' bottom line. As many online sellers have built their client base by offering better-than-store prices, the added costs may make it impossible for them to generate sufficient profit. This is likely to be particularly devastating for companies like Amazon.com (NASDAQ: AMZN), who are completely reliant upon their internet sales. At the very least, we're likely to see a major surge in companies that use U.S. Postal Service!
How would one describe today other than as a real disappointment? The DJIA broke 12,000 for the first time since March and the pressure here makes one wonder if that magic psychological level will hold. Oil was up over $136/barrel late in the day over strikes in Nigeria and lower inventories.
AMR Corp. (NYSE: AMR) saw another drop of almost 5% by the final minutes, down to $5.42, after the company presented its estimates on fuel use, costs and hedges today at a Merrill Lynch Global Transportation Conference.
The second-largest delivery company reported today a net loss of $241 million, or 78 cents per share, compared with net income of $610 million, or $1.96 per share, a year earlier. Excluding an $891 million charge for its Kinko's unit, profit would have been $1.45 per share, missing the $1.47 estimate of analysts surveyed by Bloomberg News.
Wall Street, though, gave a thumbs down to FedEx's lackluster guidance which heightened concerns about the health of the overall economy. Shares of FedEx and its rival United Parcel Service Inc. (NYSE: UPS) slumped in early trading.
Stocks futures fell early Wednesday, ahead of the weekly crude oil inventories figures as oil persists at high level and ahead of earnings from Morgan Stanley and FedEx as many hope to see clearer signs the credit crunch crisis has peaked and its effects begin to ease.
On Tuesday, U.S. stocks fell sharply despite solid earnings from Goldman Sachs. Goldman, though, suggested more is to come in terms of the credit crisis. In addition, several economic figures on inflation, housing and industrial production further damped the sentiment on Wall Street. The Dow industrials fell 108 points, or 0.89%, the S&P 500 dropped 9 points, or 0.68%, and the Nasdaq Composite lost 17 points, or 0.69%.
Not much is on the economic docket today. At 10:30 a.m. EDT, the government will report its weekly figures on fuel supplies. Oil prices edged above $134 in electronic trading ahead of that report and the meeting in Jeddah Sunday of oil producing and consuming nations. So far, it seems the promised increased production from the Saudis has not helped to lower the price of oil as it is weighed against increased global demand.
After hitting a one-year high of $119.10 in July, the stock hit a one-year low of $80.00 in January. This morning, FDX opened at $88.67. So far today the stock has hit a low of $87.15 and a high of $89.29. As of 11:45, FDX is trading at $87.97, down $2.20 (-2.4%). The chart for FDX looks bearish and steady, while S&P gives the stock a very positive 5 STARS (out of 5) strong buy rating.
For a bearish hedged play on this stock, I would consider a July bear-call credit spread above the $100 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 6.4% return in five weeks as long as FDX is below $100 at July expiration. FedEx would have to rise by more than 13% before we would start to lose money.
News that FedEx (NYSE: FDX) is taking a huge charge of $891 million to drop the name Kinko's marks both the end of an era, as well as a huge waste of money that will impact shareholders.
According to the story in MarketWatch: "The company called it a "strategic decision" to strike Kinko's from the retail chain's name, and the charge is broken down into a $515 million charge for the use of the trade name, $367 million in goodwill and $9 million in other expenses."
A $515 million charge for use of the trade name? You've got to be kidding. The new name is going to be FedEx Office. That's pretty catchy, huh? I am going to run over there right now to make a photocopy, because it is such great branding. Not.
The company says that Kinko's was primarily a photocopying and faxing service while FedEx office is an entire back-office for small and mid-sized businesses. Unfortunately, with the halting of new store openings and layoffs, it appears that small and mid-sized businesses don't need to outsource their whole back-office to FedEx.
Bye bye Kinko's, it was fun while it lasted.
Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has has no position in any stock mentioned, as of 6/3/08
With the Apple (NASDAQ: AAPL) conference just around the corner, analysts expect several features from the new iPhone that will likely be announced during the conference. The first is of course the 3G capability, which would boost iPhone sales in Europe and quell complaints about the speed of download through the AT&T (NYSE: T) network. The second is the corporate email capability. A third feature will likely be iTunes downloads through cellular networks and the applications store. Also, some expect Apple to try a different business model including subsidies and multiple carriers.
FedEx Corp. (NYSE: FDX) said it plans to change the FedEx Kinko's name to FedEx Office and take a related charge of nearly $900 million. The company said the name change will better reflect the services that it provides at its retail centers. Perhaps FedEx is right, but Kinko's is a well established brand and I find it hard to believe someone doesn't know what Kinko's is all about. FedEx also said it would raise its quarterly cash dividend by one penny, to 11 cents a share payable July 1 to shareholders of record as of June 13.
General Motors Corp. (NYSE: GM) is expected to announce plant closures in North America on Tuesday morning, according to The Wall Street Journal. The closures may include a truck plant in Oshawa, Ont., Canada. The Canadian Auto Workers will hold a press conference later this morning.
I recently attended the Warrillow Conference, which focuses on how to sell to the small business market. And, yes, it's a big opportunity -- with more than 27 million small businesses in the U.S. Some of the big players in the space include MasterCard (NYSE: MA), FedEx (NYSE: FDX), Intuit (NASDAQ: INTU) and so on.
Well, one of the panels at Warrillow had a group of small business owners -- and they talked about what works when trying to sell to them.
Let's take a look:
Wearing many hats: The small business owner does just about everything. In other words, time is a precious commodity. So, when pitching, make sure things are clear and concise. What are the main benefits? The costs?
More importantly, small business owners want something that is plug-and-play and doesn't require a big learning curve.
The assistant: Many small business owners have one. And, an assistant is often a gatekeeper.
In other words, it's actually a good idea to make your pitch to the assistant -- since he or she will likely relay the information to the owner.
MOST NOTEWORTHY: American International Group, Pacific Sunwear, FedEx and Cheniere Energy were today's noteworthy downgrades:
Goldman downgraded American International Group (NYSE: AIG) to Neutral from Buy as they expect market concerns regarding balance sheet pressures and dilutive capital raises to pressure shares.
Citigroup downgraded shares of Pacific Sunwear (NASDAQ: PSUN) to Sell from Buy as they believe Q1 trends are disappointing following the comp results.
Morgan Keegan downgraded FedEx (NYSE: FDX) to Market Perform from Outperform citing the uncertainty related to fuel prices and the economy. RBC
Capital cut Cheniere Energy (NYSE: LNG) to Underperform from Outperform citing the corrected 2007 10K which indicates increased liquidity concerns.
OTHER DOWNGRADES:
Oppenheimer cut Navios Maritime (NYSE: NM) to Perform from Outperform.
Credit Suisse lowered TAL International Group (NYSE: TAL) to Neutral from Outperform.
Vital Signs (NASDAQ: VITL) was downgraded at Piper to Neutral from Buy.
TheStreet.com's Jim Cramer says FedEx exposed three market fictions with its news on Friday.
Sometimes you have to wonder why some stocks just don't stay down after bad news.
Take FedEx (NYSE: FDX) (Cramer's Take). Earlier this year, the stock shed about 10% of its value when it forecast worse-than-expected earnings, citing lower volumes and higher fuel costs. It then proceeded to rally 25% from that dismal forecast even as oil went up dramatically and business in the U.S., particularly retail business, got softer and softer!
Now we get pretty much a simple extension of what the company said last near the end of March, and people are acting surprised and furiously dumping the stock.
FedEx cuts to a couple abiding fictions in this market. The first is that all valuations are cheap, so it is OK to buy them. FedEx has long-term growth of 10% and sells at 14 times earnings, but I question both the growth and the multiple as being too high in a world where energy just won't quit. But that brings us to the second fiction: People have been buying this stock with the idea that oil just has to level off somewhere. Considering it didn't, how could anyone be surprised at this news? And the third fiction? The turn in the economy is right around the corner.
FedEx Corp.
United Parcel Service
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Alcoa's Q2 2008 earnings transcript
Anheuser-Busch (BUD) sues InBev, what's next?
Wal-Mart might help your portfolio during the recession
