Macro Wrap – Sandy and Q4 Earnings

by Enis December 19, 2012 8:00 am • Commentary

Fedex reported an earnings miss today that it blamed entirely on the impact from Hurricane Sandy.  It reported 1.39 in EPS vs. 1.41 expected, citing an 11 cent cost from Sandy that caused the miss.  The company did beat revenue expectations for the quarter by almost 3%, so the EPS miss seems to be caused by increased expenses rather than lost sales.

Whatever the cause of the earnings miss, many companies are likely to blame Sandy when Q4 earnings reporting season starts in earnest in January.  With evident foresight, Dan told me right after the storm occurred that it would be an easy scapegoat to use for any companies that were having a tough Q4.  In fact, Fedex’s overall number looks decent (and the stock is currently trading around up +1%).  It’s just worth noting that as we approach earnings season next month, companies have a ready-made excuse for any company weakness.

Turning to the Fedex results for a read on the global economy, here was the company’s headline comment for the quarter:

Operating income for the quarter improved at FedEx Freight and FedEx Ground due to increased volumes and higher yields, while persistent weakness in the global economy and increased demand for lower-yielding international services limited profits at FedEx Express.

Later in the release, the obvious bright spot is the growth in E-Commerce volumes, while international continues to be the area of primary weakness.

I am long the Dec / Jan13 92.5 put spread, and don’t plan on trading the position today, but will revisit the position on Friday depending on where FDX closes the week.

Markets overnight:

  • Asia was mostly green, as Japan continues to roar.  The Nikkei is up almost 5% this week as the yen continues to weaken on expectations of Japanese stimulus.
  • Europe opened green, and has been green the whole session, now up 0.5%, led by the financials sector, which is making 9 month highs.
  • SPX futures indicate a +0.1% open.    The dollar is weaker 0.5% vs. the Euro, which is at 9 month highs, and Treasury bonds down again.  Commodities mixed
  • Housing Starts and Building Permits data released at 8:30 am