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While FedEx is without a doubt an iconic brand and a true leverage play on global economic growth, I just don't believe the 25% gains over the past five months are justified, especially for a company that is clearly in transition. It's certainly possible the company can prove me wrong on Wednesday when it reports fiscal first-quarter earnings. But given how disappointing FedEx's fourth-quarter results were, including a 41% decline in operating income, I'm not betting on it.
Now, I do appreciate that there were several one-time charges in that 41% operating income decline, much of which were attributed to the company's restructuring efforts. I will also grant that the company's 4% year-over-year revenue growth was solid and was in line with Street estimates. Nevertheless, the stock, by virtue of its price-to-earnings ratio of 21, is being valued as if this transition is fully complete.
To that end, it also seems as if the Street has conveniently dismissed the words of FedEx Chairman Frederick Smith, who stated that his company is facing poor economic growth, while also describing what he sees as a situation where customers have begun to look for "less-costly international shipping services."
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Let's not forget that weak shipping volumes still remain an issue -- it's something that has gone on for several quarters, falling again in the June quarter by 1% year over year in the U.S. Here again, this shows the Street is not assessing FedEx's total performance relative to its restructuring plans. It's certainly doesn't appear as if investors are treating this stock with "fragile" contents it contains.
The good news is: both the Ground and Express businesses were up 12% and 3%, respectively. But that, too, has been a recurring theme. How long can management rely on these two segments until the freight business stands on its own? Until freight begins to perform better, we can't ignore the possibility that FedEx just may be "losing ground" to competitors including