FedEx Corp (FDX.BA), a leading package and shipping company, has cut their profit forecast for the second time this year on Friday. Because fuel costs are continually rising and there is weak freight demand, the company has lowered guidance for the third quarter 2007.
Specifically, a 14 percent surge in crude oil prices since September has overwhelmed FedEx’s overall financial health. FedEx stated that fuel costs jumped 8 percent, or $85 million, over the last fiscal quarter. As a result, per-share earnings for fiscal 2008 were reduced from $6.70-$7.10 to $6.10-$6.40, a significant drop. FedEx has also lowered their outlook for the second quarter ending Nov. 30 to $1.45–$1.55 a share from $1.60-$1.75.
Increased fuel expense will trim 17 cents a share from FedEx earnings this quarter, estimated Langenfeld, who is based in Milwaukee. He cut his rating on the stock to “neutral” from “outperform.”
Keith Davis, analyst for Farr Miller & Washington, stated “It’s kind of hard to figure out how much of this is related to the lag in the fuel surcharge compared to the general economy. I suspect the business is running a little slow and it’s more related to that.”
Because FedEx and other similar transportation companies are the first affected by economic slowdown, such companies are often leading indicators in the overall health of the economy. Robert W. Baird & Co. commented “It is absolutely an indication of the broader economy. We may look back and figure that we are already in a recession. If we’re not, we’re very close to one.”
FedEx fell $4.57, or 4.5 percent, to $96 during Fridays trading hours. This drop was the biggest one-day decline since July 27, 2006.
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