FedEx Corp. is predicting that slow global economic growth will crimp its earnings over the next year, and is promising huge cost cuts in response.
The world’s second-largest package delivery company is a closely watched bellwether of global economic health because it ships so many different items to businesses and consumers. Here’s a look at what executives said in a conference call after reporting the outlook and lower fiscal fourth-quarter results:
Recommended Stories
SAFE AT HOME?
Moderate growth is expected to continue in the US. FedEx predicts U.S. GDP growth of 2.2 percent this year and 2.4 percent next year. That’s in line with most economists. But in order to reach that, FedEx is assuming that there will be no significant tax increases in the U.S. next year and that the debt crisis in Europe will be managed successfully.
EUROPE
FedEx is optimistic about growth there despite their expectation of a mild recession. That’s because the company is rapidly expanding its services through a number of small acquisitions.
“So despite the turmoil over there, we probably are a little bit more bullish on Europe than others as a result of what we’ve been doing,” Chief Financial Officer Alan Graf said on the conference call.
ASIA
FedEx is seeing revenue and overall number of packages fall overseas, especially in Asia. FedEx said its business was significantly impacted by technology company customers shifting product launches. But it won’t say who those customers are. Microsoft unveiled a new tablet computer, Surface, on Monday — the company’s first foray into the market dominated by Apple’s iPad.
FUEL PRICES
Lower fuel prices are allowing more businesses and consumers to save money, but FedEx cautions that it’s merely one piece of the cost puzzle. Because the economy is still growing slowly, the company doesn’t expect companies to feel much more secure despite the break on fuel.
BOTTOM LINE
Weaker global economic conditions are driving more customers to choose cheaper shipping methods. That’s hurting FedEx and its larger rival UPS. FedEx believes these conditions will continue because of the European debt crisis and slowing Asian growth. FedEx’s fiscal 2013 forecast implies earnings per share growth of 7 to 15 percent, compared with 40 percent growth in 2012.
