The FedEx Indicator
Just came across a provocative take on the pronouncement last month by the grand poobah of investors, Mr. Warren Buffett, who declared the U.S. recession is for all intents and purposes over.
Not so fast, argues Motley Fool contributor Rich Smith.
As Smith sees it, one just needs to review what’s going on with FedEx to get a clear, on-the-ground picture of the state of the U.S. economy. “FedEx reported its fiscal first-quarter earnings results… and I guess you could find some good news in there if you looked really hard. FedEx affirmed its Q2 guidance… Um, fuel costs are down. So that's good news for anyone who burns gas -- you, me, Delta Airlines,” Smith deadpanned. “But everywhere else, it's bad news all 'round. Revenues dropped 20% from last year, FedEx lost 240 basis points worth of operating margin, and its operating profits got cut in half.”
What’s worse than those headlines, Smith added, are “the bits of dicta contained in FedEx's report,” which he sampled thusly:
• FedEx Express incurred a bigger revenue drop than FedEx overall -- 23% -- while the unit's operating profit margin fell more than the overall company .
• FedEx Services “took a smaller hit.”
• FedEx's Freight unit endured the biggest decline of all as its revenues fell 27% and operating profit margin declined to 0.2%. “Operating profits all but evaporated,” he noted.
“FedEx is still hurting everywhere, but it's feeling the most pain in shipments to major retailers,” Smith emphasized. “ Revenues in this segment are down significantly, which suggests business is hurting across the country."
Whether or not Buffett-- or anyone else-- is technically right about the recession being “over,” Smith wrapped up by rightly pointing out that “there's still a lot of pain out there. Even if the worst is over, it's not gonna feel like it for at least another three months.”
I’d bet longer. How about you?
