Slow U.S. economic growth and an unprecedented increase in the cost of fuel have resulted in lower-than-expected U.S. package volume and an accelerating contraction in the use of premium air products. In addition, the anemic U.S. economy is negatively impacting package volume into the United States, affecting results for the International segment.
Record high fuel prices and the weak U.S. economy dampened volume growth and substantially affected our bottom line.
– Fred Smith, Chairman and CEO Federal Express, June 18
Think about it: if business activity is humming, businesses are sending a lot of packages to each other and consumers are ordering a lot of stuff which has to be shipped to them. For this reason, the transports have always been thought to be an important indicator of economic activity.
In the last week, both Federal Express (FDX) and UPS (UPS) have told us that the economy is very weak.
Last Wednesday, Fed Ex said that US package volumes for the quarter ended May 31, 2008 fell by 3.4% (FDX FY 4Q Earnings Release) – the most since the quarter ended Feb 28, 2002.
Yesterday after the close, UPS dramatically lowered its earnings guidance for the second quarter ending June 30 from $0.97-$1.04 to $0.83-$0.88 (UPS Press Release).
Fed Ex shares are down about 5% and UPS 7% over the last 5 trading days (since Fed Ex’s earnings release).
Disclosure: Top Gun has no position in UPS (UPS) or Fed Ex (FDX) shares.