Given its far-reaching exposure to ample global economic activity, Fedex Corp’s business commentary is more useful than most companies for its insight into macroeconomic trends. Here is the opening quote from Fedex CEO Fred Smith in this morning’s earnings release:
The third quarter was very challenging due to continued weakness in international freight markets, pressure on yields due to industry overcapacity and customers selecting less expensive and slower-transit services. In response, beginning April 1, Fedex Express will decrease capacity to and from Asia and will aggressively manage traffic flows to place low yield traffic in lower-cost networks. We are currently assessing how these actions may allow FedEx Express to retire more of its older, less-efficient aircraft. We remain focused on our strategic cost reduction programs, which are ramping up and on track.
Not exactly booming business trends. Looking at the stock’s price action in the past 3 months, you would think that Fedex business was going gangbusters. But as I mentioned in my Macro Wrap post last week, there are already many signs of weakness in global demand. The strength in stocks over the last 18 months has been driven much more by changes in investor psychology and sentiment rather than company fundamentals.
Fedex is no different. Far from hitting on all cylinders, most year-over-year operating metrics are down. Meanwhile, the company reduced full year guidance due to poor international revenue trends.
I still expect the stock to remain within the 100 to 110 range I laid out yesterday in my trade post (trading 103 in the pre-market). Not because of good fundamental reasons, but because the psychology of the investors in FDX (like most investors in the market right now) is yet to be broken by bad news. If companies continue to deliver earnings disappointments though, the deteriorating fundamentals will take their toll on stocks over the course of the coming months.