FDX Stays in Line, Guides Up

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

FedEx (FDX - commentary - Cramer's Take) reported earnings this morning and the company is showing signs of managing through this tough period. For the quarter just ended, the company posted EPS of $1.23 on total revenue of $9.97 billion, essentially in line with management's recently upwardly revised guidance.

Looking toward next quarter, the company expects EPS to land within a range between $1.40 and $1.60 vs. consensus expectations of $1.35. This guidance incorporates about $95 oil prices and some slowdown in exports because of the strengthening dollar.

Segment Mix:

• Express (about 65% of total sales) revenue increased 9% year over year, with operating margins of 5.4%, down from 8.8% last year.
• Ground (18% of sales) revenue also increased 9% year over year, with operating margins of 11.1%, down from 11.7% last year.
• Freight (14% of sales) revenue increased 10%, with operating margins of 6.6%, down from 8.5%.

FedEx plans to increase shipping rates by an average of 6.9% in the U.S. and export businesses and plans to reduce the fuel surcharges slightly. Jet fuel cost were up 77% from last year, while package volumes declined 5% year over year. Companywide operating margins were 6.3%, and management expects GDP growth of 1.09% for 2008 and about that for 2009.

Overall, I think this company is doing a pretty good job and will come out of this storm a better company. I would look to build positions on any weakness and keep in mind that the economic weakness could persist for a bit longer.

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At the time of publication, Thomas had no positions in the stocks mentioned, 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.