FedEx Sees Growth on Horizon

ANDY MEEK | The Daily News

BUSY MONTH: Before the month is out, FedEx Corp. will announce its company earnings for the first quarter of fiscal year 2009. FedEx also will hold its annual meeting of shareholders this month in the Grand Ballroom of The Peabody hotel. -- PHOTO COURTESY OF FEDEX CORP.

For both shareholders and executives of FedEx Corp., the transportation giant’s expected outlook for 2009 soon will come more into focus after several months of wrestling with the housing and economic slump in the U.S.

The company’s earnings report for the first quarter of fiscal year 2009 is due this month, and September also will see the 2008 annual meeting of FedEx stockholders held in Memphis in the Grand Ballroom of The Peabody hotel. The last earnings report in June found FedEx expecting to see earnings of 80 cents to $1 per share for Q1 fiscal year 2009, even though Wall Street analysts were forecasting $1.27 per share.

The next earnings release is scheduled for Sept. 18. The company’s shareholders meeting will take place at The Peabody on Sept. 29 at 10 a.m.

In a good spot

While the broader business climate for the company is expected to remain a challenge – in line with U.S. and global economic conditions – there are a few bright spots in the outlook for FedEx. On the big-picture strategy front, growing FedEx’s international business appears to be front and center and a source of good news.

“We expect the firm to exploit its (international) advantages for years to come, despite challenges of fuel price shocks and global economic cycles,” Keith Schoonmaker said in a recent analyst note for Chicago-based investment research firm Morningstar Inc. “FedEx now derives one-fourth of its revenue from international shipments, some of which is high-margin international priority packages. Because global air freight shipping is growing and profitable, worldwide expansion is a critical growth strategy.”

FedEx Express International president Michael Ducker echoed those same thoughts in a presentation this summer at the 2008 Merrill Lynch Transportation Conference.

“Let me just point out FedEx’s long-term goals here,” he said. “With the U.S. economy continuing to experience adjustments and the housing, financial system, automotive system and growth in other parts of the world peaking, overall world GDP is expected to perform slightly below trend in the near future.

“We are very optimistic because, if you look at it, the strength of this international network ... is going to be the high-growth lever for FedEx in the future, and we believe we are well poised there.”

Plan in place

In the company’s most recent Form 10-K filed with the U.S. Securities and Exchange Commission, FedEx outlined the steps it is taking to move toward greater productivity and profitability. Those steps include enlarging its FedEx Express network and focusing especially on growing markets such as India and China, building up the speed and dependability of the FedEx Ground and FedEx Freight networks and improving customer service across the board.

In its June earnings release, FedEx blamed much of the downward shift of its expected earnings per share on the rising cost of fuel, which continues to bite into the company’s outlook. Even if the company can appropriately tighten its belt regarding the cost of fuel, there’s no guarantee FedEx still wouldn’t see a dampening of demand from customers who might forgo some of its services, according to the 10-K.

“I think you have seen just some dampening across – customers are down trading based on the economic conditions all across all of our transportation portfolio,” Ducker said at the Merrill Lynch conference. “And that is primarily due to the fuel costs that they are experiencing.”

Last week, FedEx Express announced an upgrade to its next-business-day service from Europe to major U.S. cities on the East Coast via the company’s FedEx International Priority service. The company announced its new service would provide fast turnaround delivery from Europe to cities such as New York, Newark, N.J., and Boston.

In a note to shareholders in FedEx’s 2008 annual report, FedEx chairman, president and CEO Frederick W. Smith said: “Entering FY09, we are initiating several major cost-saving measures in light of the challenging economic environment. We are also redoubling our sales and marketing efforts to produce acceptable returns and cash flows, as we adjust for the new realities of high fuel prices and modest U.S. economic growth.”