As always, FedEx earnings provided us with a good look at the global economy. The big news from their earnings report was disappointing guidance, but that might be more a reflection of an inept analyst community as opposed to a quickly deteriorating economy. Their full year and quarterly guidance was well below expectations:
“The forecast for earnings of $4.40 to $5 per share, which trails analyst predictions of $5.05 per share, reflects expected higher costs as shipping volume picks up. But the company is still banking on a continued recovery in the global economy.
The Memphis, Tenn., company expects to earn 85 cents to $1.05 per share for the quarter ending in August. Analysts are expecting $1.03 per share.”
On the conference call, however, FedEx executives sounded fairly confident with regards to the state of the global economy. Specifically, they see continuing economic improvement and prices stabilizing:
“We believe the improving economy will result in a more stable pricing environment.”
Business is at its strongest levels since 2007 with Asia and Latin America leading the way:
“International load factors are at their highest levels since 2007. Asian and Latin America are particularly strong.”
Thus far, they are seeing a muted impact in Europe:
“We’ve seen solid growth in Europe.”
Still, they recognize that the environment is fluid and they could be singing a different tune next quarter:
“There are so many things going on (at the macro level) that we could have a different tune in September”
All in all, it sounds like the global economy is more stable than many might think, however, the key takeaway here is that analysts are exceedingly optimistic. FedEx is likely to reflect the broader outlook from executives this quarter – an outlook that I expect to be very cautious given the potential downside risks. H2 expectations have been boosted substantially in the last few months. Given the macroeconomic risks it would not be surprising to see executives issue disappointing guidance across the boar during the upcoming earnings season.