FedEx Exceeds Analyst Expectations; Boosts Transports

Brittney Barrett |

FedEx Corp. (FDX) anticipates that heightened demand for international air-cargo shipments may result in fiscal 2012 profit exceeding analyst estimates. FedEx believes that the economic recovery, while slow, is regaining traction and the sluggish fall of jet-fuel costs could help make for larger profit margins.  According to Fed-Ex, the shares of which have been climbing in trading today, earnings could amount to between $6.35 and $6.85 a share compared to an average estimate of $6.54 from analysts surveyed by Bloomberg. FedEx, which dually operates a massive cargo airline and UPS, delivers everything from electronics to financial documents and pharmaceuticals, making the company an excellent indicator of broader economic health.

On a conference call this morning, Fedex chief executive Fred Smith pinned recent economic weakness on the fuel prices and the Japanese disasters. He sees the impact of both as waning, forecasting gross-domestic-product growth of 3 percent for fiscal 2012 and expressing optimism amid murky financials for many other companies. FedEx reported a fiscal fourth-quarter profit of $558 million, or $1.75 a share, from $1.33 a share, from the year-earlier period. Meanwhile, revenue reached $10.55 billion against analyst expcectations of $10.41 billion.

The company also issued a strong forecast, saying it now expects to earn between $1.40 and  $1.60 a share in its fiscal first quarter.

FedEx’s morning announcement helped all of transports to surge higher. Perhaps it was Smith’s optimism regarding the cost of jet fuel but airlines also took off in the aftermath of the announcement. The Dow Jones Transportation Average traded above the Dow Jones Industrial Average through the morning before several of the stocks reversed after the disappointing announcement from the Federal bank.

The combined negative and positive news in the day left AMR Corp.  and Southwest Airlines (LUV) only slightly higher for the day. Delta Airlines (DAL) improved the most while JetBlue (JBLU) also edged slightly higher. Travel on July 4th weekend is anticipated to boom and jet fuel, which is currently out-of-sync with the weakened crude oil prices is also expected to drop, whch would help to lower ticket prices and push up volume. This, coupled with the Fedex announcement, indicates that some of the drivers to a weakened Q2 are coming to an end, boosting yearly and 3Q forecasts.

Oil prices appear to be stabilized in the mid-$90 range now and the lower volatility is making transport stocks, which are heavily dependent on oil, look like  a more reliable bet. Should oil prices continue in their current range the sector including Fedex, airlines  and rails will see higher pricing.

The Dow Jones Transportation Average has ticked up considerably since reaching its low on June 10th, now higher by 5 percent since that point.

 

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
NBR Nabors Industries Ltd. 16.65 -0.42 -2.46 7,136,850
LUV Southwest Airlines Company 49.85 2.17 4.55 7,738,753
JBLU JetBlue Airways Corporation 21.89 0.70 3.30 7,127,141

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