Those who believe that FedEx is a great way to gauge the health of the U.S. economy may have a tough time puzzling their way through the shipping giant’s fiscal fourth-quarter results, released early Wednesday morning.
On the surface, at least, the so-called FedEx indicator looks rosy. FedEx (NYSE: FDX) posted earnings that were higher than the market expected: Excluding restructuring and other charges, it reported net income of $2.13 a share, compared to the consensus forecast of $1.96, better than the $1.73 announced a year ago. Revenue was up about 3.6 percent, at $11.4 billion. Not too shabby, and perhaps a mildly encouraging sign if you believe that the company’s financials are an accurate reflection of consumers’ confidence and willingness to spend on goods and have them delivered via a relatively costly door-to-door courier service.
The results were especially telling in light of the ongoing uncertainty over whether the Federal Reserve views the U.S. economy as robust enough to withstand tighter monetary policy. The timing of FedEx’s earnings release – just hours before the Fed’s much-anticipated announcement after the conclusion of its June meeting – made the data point even more compelling to some investors.
But as with the Fed announcement itself, what was missing may matter as much as what was said. In the case of Federal Reserve policymakers, what wasn’t mentioned was the specific timing of the end to the monthly $85 billion bond-buying program known as QE3. In FedEx’s case, what is missing from the picture is robust growth. While the reported earnings were higher, that was only after removing restructuring costs from the equation.
The company’s outlook wasn’t all that much more encouraging. True, its core express division gave profits a big boost, and ground shipments also look healthy. But freight shipping is weaker, and FedEx’s management were significantly less bullish about the company’s outlook, predicting earnings growth for the coming fiscal year of only 7 percent to 13 percent, well below the consensus of around 20 percent.
FedEx has more flexibility than the Fed. Responding to the trends it sees taking shape in the global economy, the company plans to trim capacity in international freight. High fuel prices are one factor that has caused price-sensitive Asian shippers to shift to sea shipments over air freight in recent quarters, and the company has said it realizes it will have to pursue other restructuring initiatives in recognition of this move to slower and cheaper delivery options.
That doesn’t mean it isn’t causing stress. Fred Smith, FedEx’s CEO, bordered on huffy and irritable when he responded to conference call queries about this trend – clearly more than just a temporary shift – from analysts. “You’ll just have to trust us to manage the business,” he told them.
Fed policymakers are grappling with similarly frustrating fundamentals and an equally irritating public constituency. Demands for clarity in terms of the timing and nature of any unwinding of the quantitative easing program are fine and dandy, but it’s logical that the Fed doesn’t want to be pinned down to specifics.
Just as FedEx’s headline number and some of the business-specific results seem to suggest a robust economy, so the Fed’s statement took a more upbeat view of the recovery. Despite “elevated” unemployment rates, policymakers noted in their formal comments that the jobs picture has brightened in recent months and now believe that unemployment will fall slightly faster than they had previously forecast.
Ultimately, both FedEx and the Fed have left us with little more than two more straws in the wind suggesting that the economy is strengthening, but not any convincing evidence that growth will reach robust levels. Uncertainty, for now, remains the name of the game.