Is The State of FedEx Indicative of An Imminent Recession
Bill Poulos | Dec 20, 2018 04:22PM ET
What FedEx (NYSE:FDX) Had to Say in Their Most Recent Earnings Report
FedEx released its quarterly earnings this past Monday alongside forecasts for 2019’s fiscal year. Those forecasts reflected a far weaker company than analysts previously anticipated.
· 2019 earnings guidance fell into a range of $15.50 – $16.60, which is down from the $17.20 to $17.80 predicted last quarter. Analysts were in the middle range of FedEx’s original forecast at $17.33 per share.
· Top and bottom lines were more positive, with FedEx reporting earnings of $4.03 a share, which was better than the $3.94 predicted by analysts.
· The company also beat revenue expectations, reporting $17.8 billion, safely above the $17.75 billion predicted by analysts.
If you’re just looking at those numbers, things don’t look so bad, but the earnings report as a whole is what has people concerned. In addition, the company’s blaming its problems on the trade war, and that time line just doesn’t add up. Especially after their significant drop on Wednesday.
FedEx’s Status As An Economic Bellwether Sparks Fear
As if that news wasn’t bad enough, what really has market analysts concerned is how fast those projected numbers for 2019 changed. In the span of a single quarter, a mere 3 months ago, FedEx was anticipating global growth and had to turn around this quarter and report an entirely different anticipated fiscal year. That means that the economy has slowed to such a significant degree that FedEx felt the need to dramatically revise their forecast.
Per the company Morgan Stanley’s analyst Ravi Shanker, the cuts are “jarring” and that a “severe global recession” could lead to an “ongoing deceleration in global trade near-term”.
He continued on to say, “We recognize that global growth has slowed but we are very surprised by the magnitude of the headwind, which is what might be seen in a severe recession. We believe global growth concerns are also likely to get worse before they get better next year, which could mean more of a drag on FY20 EPS.”
Certainly the trade war hasn’t helped matters, but it can’t be blamed entirely for FedEx’s dramatic change in fortune. Economic growth is slowing at a rate far greater than anyone anticipated.
Despite All That, Technical Indicators (and Fundamentals) Are Looking Up
FedEx shares have plummeted this past month, crashing down through the $182.89 support and leveling out at around $165 per share. This has nullified more than two years of investor gains.
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That support was set back in 2017 and FedEx’s fall below it has left the company in dire straits, setting investors to panic. That being said, with prices as low as they are, there are still indications that a bounce-back is in sight just in time for Christmas.
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