Interpreting FDX: Company Specific Or Macro Canary?

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Federal Express (FDX) preannounced disastrous earnings last Thursday afternoon and filled in the specifics yesterday when it reported the actual numbers. As you can see in the chart above FDX was apparently doing just fine – including a nice bump in response to its previous earnings report three months ago – until the disastrous preannouncement last week. The question we want to answer is: Is FDX’s disastrous quarter company specific or a tell on the macro economy?

My contention is that FDX’s report signals that the macro economy is rolling over in the wake of all the Fed tightening so far this year. Average Daily Package Volume in its core Express division fell 11% year over to 5,506 from 6,216 (in thousands). Part of that is due to the easing of the pandemic as more people shop and do business in person.

But that doesn’t account for the whole story. I went back three years to the quarter ended August 31, 2019 – before the pandemic – and Express volume is 7% below the number from that quarter as well (5,932) even though the overall economy is larger than it was then.

While I can’t answer the question definitively I find it less likely that FDX has fallen apart as a company in the last few months. My suspicion is that FDX is the first canary in the coal mine of a coming global recession and that we will hear many similar reports in the upcoming 3Q22 earnings season. The Fed is overshooting and tightening into a recession and new lows are likely shortly.

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