Saturday, July 04, 2009

FedEx Poor Earnings Forecast

America’s top-rated Company FedEx Shows Poor Earnings Forecast, Is The Economy Hitting It Hard?

Late yesterday, the United States’ stock market reported a decline in FedEx stocks. Fedex is America’s top-rated overnight parcel delivery company. FedEx itself announced an imminent dip in profits of 30 to 45 cents a share in this reporting period, although analysts were expecting shares of least 60 cents. Wednesday’s stock market report confirmed the predicted decline by closing at a loss of 2.6%. Fedex’s profit decline is partly attributed to its acquisition of Kinkos. Kinkos’ office services have declined in recent months due to the closing of small businesses resulting in America’s struggling economy. The improvement of office technologies and paperless systems has also contributed to Kinkos’ decline in profits. However, Fedex also said that the parcel delivery division’s earnings are hurt by depressed manufacturing activity, as well as a recent rise in fuel prices. What’s worse is that Fedex has already warned that fiscal first-quarter earnings may be as much as 76% below last year’s levels.

Fedex’s international division is said to be stabilizing and has shown signs of improvements and growth in Asia, Latin America and Europe, compared with the third quarter. “That’s a very good sign for us,” said Chief Financial Officer Alan B. Graf Jr. However, this is not the huge increase and success that would ultimately save Fedex. Fedex executives are reviewing strategies to increase growth and earnings in the second quarter.

The economy and gas prices are not the only woes facing Fedex. Just this month, Fedex launched an expensive and politically charged campaign against the unionization of 100,000 of its workers. FedEx contends that its employees are properly classified and that this movement to unionize would cause disruption, less reliability for the company and higher costs. On June 9, FedEx launched its campaign, “Brown Bailout”, which will soon be seen on television and print ads. The campaign asks consumers to complain to their senators about union legislation. “Brown Bailout” refers to Fedex’s main competitor, UPS; (its workers wear the color brown) receiving a government bailout for its purported struggle to compete with Fedex.

Frederick Smith, founder and CEO of FedEx, is not looking for a government bailout. However, there might be signs that Fedex is acquiring a new client, the United States government. This possible new deal for Fedex would not be for delivering parcels, but for its tracking technology. Fedex has been responding to a growing political term called the “Fedex Approach”. The Fedex Approach theory, originated by Republican Mike Huckabee, a one-time republican candidate for president, suggests that the technology of tracking packages by FedEx should be implemented by the government to track the 12 million illegal immigrants around the country. Frederick Smith agrees with the Fedex Approach and said, “Using information technology is possible to handle very large problems. There are structural issues inside the federal government that prevents it from doing so, but technologically, it’s very feasible.” Despite a grassroots effort by some republicans to outsource illegal immigration tracking to Fedex, Frederick Smith does not entertain the notion as a serious offer yet.


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