FedEx is a barometer for the US and global economies and the message it has been sending for much of the past nine months has been gloomy: falling volumes, falling revenues, losses, job cuts, wage cuts for executives and staff.
So if those green shoots sighted in varying parts of the economy were real and sustained, and not just fleeting glimpses, you’d expect a group like FedEx to be a believer.
It seems not. The company’s 4th quarter and 2008-09 financial results were gloomy.
It is seeing some signs of a steadying in the fall in volumes, especially in its international business, but sees the next two quarters as being tough. Management has warned that the rebound in oil prices will have an impact on its finances.
FedEx’s comments and figures helped US shares fall for a third day US stocks fell for a third day.
Not helping was a move by Standard & Poor’s which downgraded the credit ratings of 18 banks. The agency said operating conditions for banks will become “less favourable”. That added to the subdued feeling that FedEx’s comments brought, which echoed a similar warning from a senior GE executive about the next six months.
JPMorgan and a group of 10 banks repaid $US68 billion in Government funds to quit the adminstration’s rescue program.
Looking forward, FedEx is the first major US company to warn about the impact on its business of the sharp run up in oil and petrol prices in the past two months.
Oil prices finished above $US71 a barrel in New York overnight, while petrol prices have risen every day in America since April 29 and are heading for $US2.70 a gallon. Jet fuel costs are rising, not as dramatically as a year ago, but by enough to cause companies like Fed Ex to become very cautious.
While management saw signs of an improvement, they were not enough to encourage any forecast on earnings next year. The company wisely refused to issue any guidance.
Because of write-downs on past acquisitions, FedEx reported an increased year-on-year fourth-quarter net loss. The company said revenue of $US35.5 billion was 6% lower, operating income was down 64% at $US747 million and net income fell 91%.
FedEx said fourth quarter revenue fell more than 20% to $US7.85 billion, another sign of the intensity of the damage being done to companies by the slump.
No wonder CEO, Fred Smith, called the past year “the most difficult economic conditions that the modern world has seen since the end of WWII.”
But FedEx expects a recovery to start in the early months of 2010. A lot of companies do, but earlier in the year they were seeing a recovery somewhere in the back half of 2009.