FDX Forecasts a Tough 2009

For Thomas's preview heading into the FedEx conference call, please click here.

FedEx (FDX - commentary - Cramer's Take) reported earnings that were in line with last week's preannouncement and suggested that 2009 will be a very tough year. As a result, the company is cutting more cost and reducing headcount.

For the quarter just ended, the company posted EPS of $1.58 on total revenue of $9.5 billion. The company did reaffirm 2009 EPS of $3.50 to $4.75 but will not provide third-quarter (current quarter) guidance, which is apparently unpredictable, but the company did provide EPS guidance of 69 cents to $1.94 for the next two quarters.

Express revenue was $6.1 billion, up 1% year over year but below original expectations. Margins in freight were down the most due to higher fixed cost and a complete drop-off in demand. The company believes that it is gaining market share in a declining market, however, as DHL is leaving the U.S. ground market.

Management said that FedEx is in the middle of the worst economic condition in the history of the company. The company has implemented a hiring freeze and will make across-the-board cuts in base salary for salaried employees of 5% and suspend 401k matches. Management said that it doesn't think that the company has hit bottom.

FedEx does not expect to hedge oil prices and thinks that oil prices will flatten out in this range.

Overall, I think the company is doing as well as it can given the magnitude of the global slowdown. Currently, I am long FedEx in pair trade, through which I have hedged out some of the risk. Given the negative tone of the call, I will probably keep the hedge on for a bit longer because I think the odds of the stock running significantly higher is unlikely.

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Know What You Own: FedEx operates in the air delivery and freight services industry, and some of the other stocks in its field include United Parcel Service (UPS - commentary - Cramer's Take), CH Robinson Worldwide (CHRW - commentary - Cramer's Take), Expeditors International of Washington (EXPD - commentary - Cramer's Take), UTI Worldwide (UTIW - commentary - Cramer's Take), Hub Group (HUBG - commentary - Cramer's Take) and Pacer International (PACR - commentary - Cramer's Take). For more on the value of knowing what you own, visit TheStreet.com's Investing A-to-Z section.

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At the time of publication, Thomas was long FedEx, although holdings can change at any time without notice.

Ben Thomas, CFA, is the founder and managing principal of Waycross Partners. Waycross Partners is a long/short hedge fund that focuses on the technology and health care sectors. Before Waycross, Ben was a portfolio manager and senior equity analyst at INVESCO, where he was part of a team that managed over $20 billion in assets. While at INVESCO, he was the lead manager for the INVESCO Midcap Growth fund as well as the firm's senior equity analyst covering technology stocks.

Prior to INVESCO, Ben worked for Banc One Securities and Prudential Securities. He graduated from the University of Kentucky with a bachelor's degree in finance and went on to earn his MBA from Indiana University. Ben is a member of the CFA Institute and serves on the board of directors for the CFA Society of Louisville.