FedEx Delivers a Warning to Investors - TheStreet

NEW YORK (TheStreet) -- Say what you want about the word "conviction" and what you believe a company is able to do or will do in the future. It is clear FedEx (FDX) - Get Report Chairman Fred Smith is not about to let expectations of a perceived growing economy dictate his company's performance expectations.

A line has been drawn, and I believe it's the right move. But at what cost?

On Wednesday, the Federal Open Market Committee, led by

Federal Reserve

Chairman Ben Bernanke, hinted at a change in policy to spur the economic recovery, saying that

"downside risks to the economic outlook for the economy and the labor market as having diminished since the fall."

While that's great news for the economy, it's not necessarily tremendous news for stocks that ebb and flow based of the expectations the Fed will continue to buy bonds the economic recovery.

Then there's FedEx, which with rival


(UPS) - Get Report

have often been viewed as barometers for the global economy, given the fact that they both conduct business on seemingly every continent.

So, it brought chills to the market when the chairman of FedEx, who should have a better-than-decent pulse on global spending, said that

"tepid economic growth and customer preference for less costly international shipping services."

Whether Smith is right or wrong in relation to Bernanke's "upbeat" statement is not the issue here. The fact that Smith's somewhat gloomy outlook prompted

analyst downgrades

is a gross overreaction. Let's not get carried away.

>>Also see: Red Hat CEO: Expect Better Economy in 2013>>

All Smith is doing is what every great leader should do -- protecting his company. While I've always had a tremendous amount of respect for FedEx, I've also believed the Street's expectations for this company have been too high. Smith clearly agrees, and he's not about to set his company up for future disappointment.

Truth be told, despite FedEx's exceptional global assets and logistical infrastructure, the company has always underperformed in some very important categories such as free cash flow. That's not to say the company has been a disappointment. But there are a handful of stocks in this sector that have performed much better than FedEx over the past three years, including UPS and

Old Dominion

(ODFL) - Get Report


Even though the company grew revenue 4% this quarter, Smith is not about to let high expectations from the Fed blind the fact that FedEx is still in the middle of some very important restructuring plans. Although the Express and Ground businesses did well this quarter, up 3% and 12%, respectively, FedEx didn't "deliver the goods" in terms of revenue per package. There was a 41% decline in operating income.

Granted, this decline included several charges related to the aforementioned restructuring plans. But adjusted operating income was flat. Again, this goes back to Smith's handling of the overall business and why I support his statements regarding FedEx's business. The downgrades notwithstanding, the way I see it it's best to be disappointed now in guidance than for investors to feel they were steered incorrectly should the company miss estimates later.

>>Also see: Tips for Surviving the 2013 Hurricane Season>>

The good news is that FedEx's long-term commitment to better performance is real. For now, though, I don't see a scenario where the stock is going to move that drastically in either direction.

That's not to say FedEx doesn't have potential. But free cash flow growth, or lack thereof, makes it difficult for me to fall in love with the stock. I can be persuaded otherwise should shares fall further amid this overreaction.

At the time of publication the author had no position in any of the stocks mentioned.

Follow @saintssense

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a private investor with an information technology and engineering background and the founder and producer of the investor Web site

Saint's Sense

. He has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.