FedEx to Report Impact of Europe's Ills - TheStreet

FedEx to Report Impact of Europe's Ills

FedEx will report earnings on Wednesday, providing Wall Street with new information on the impact of the European financial crisis on a key global business.
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(FDX) - Get Report

will report earnings on Wednesday, an eagerly-awaited event likely to provide investors with insight into the global economy.



(UPS) - Get Report

, which had revenue of $45.3 billion in 2009, maintains that 6% of the U.S. GDP and 2% of the world's GDP is in its system at any given moment. FedEx does not provide comparable figures, but it had fiscal 2009 revenue of $35.5 billion.

FedEx is more of a global play. Its 2009 revenue was 27% international, compared with 21.4% at UPS. Still, the European fiscal crisis is not expected to have much impact on FedEx results. Not only is the percentage of revenue that FedEx derives from Europe in the single digits, but also, to date, no evidence exists that international trade has been stymied by the European crisis. In fact, a declining euro may stimulate European exports.

In any case, FedEx's "international business is more oriented toward trans-Pacific and Asia, while UPS is more exposed to trans-Atlantic and European issues," said Avondale Partners analyst Donald Broughton in a recent report. "While FDX does have some exposure to Europe, it is not nearly as impacted by potential European problems as UPS."

For fiscal 2010, analysts surveyed by Thomson Reuters expect FedEx revenue to shrink about 3% to $34.3 billion. But for the fiscal fourth quarter, which ended May 31, analysts expect revenue growth of 15% and earnings growth of 107%, reflecting a continuing global recovery. The consensus earnings estimate is $1.32, up from 64 cents in the same period a year earlier. Broughton is estimating $1.37, while Jesup & Lamont analyst Helane Becker estimates $1.32.

Wednesday's earnings call is expected to include guidance for fiscal 2011, as well as observations by outspoken CEO Fred Smith. Consensus is $5.06, with a range between $4.65 and $5.45. Broughton said he reduced his fiscal year 2011 estimate to $5.29 from $5.44, reflecting "slightly higher projections for fuel and plane count going forward as the company ramps up international airfreight capacity." International airfreight is the most profitable FedEx business, he noted, adding that FedEx "continues to be our favorite large-cap name."

Becker said FedEx is benefitting from growth in Chinese exports, which rose 48.5% in May and 30.5% in April. "Goods leaving China are being shipped via air and ocean," she wrote, noting that FedEx, UPS and

Atlas Air

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are beneficiaries. Essentially, UPS and FedEx are proxies for the world economy, with the caveat that their business models enable them to make money no matter what the economy does.

So far this year, UPS shares are up about 6%, while FedEx shares are down about 3%. The

Standard & Poor's Index

is down about 1%. Some analysts speculate FedEx shares have been impacted by pending Congressional consideration of the Federal Aviation Administration reauthorization bill, which contains a provision that would reclassify FedEx Express drivers so that they could potentially be more easily organized by labor unions.

Another factor in the shares' relative performance may be that FedEx shares ran up 30% in 2009, while the S&P index rose about 25% and UPS rose about 4%. One explanation, analysts said, was that UPS was a bit more cautious in its projections for economic growth.

-- Written by Ted Reed in Charlotte, N.C.