FedEx Corporation (NYSE:FDX) reported earnings of $1.96 per diluted share for the fourth quarter ended May 31, compared to $1.82 per diluted share a year ago. The quarter’s results include a gain from a settlement with Airbus related to the A380 order cancellation, which had a net benefit to earnings of approximately $0.06 per diluted share.
The $1.90 in earnings, excluding the gain, was below the average analyst forecast of $1.98 but above the $1.85 estimate that spooked the market on Monday. The net result is the stock rallied on the news, offering further support to the thesis that not all expectations are created equal.
FedEx blamed the shortfall on a slowing economy, a condition the company expects will reverse:
FedEx expects earnings to be $1.45 to $1.60 per diluted share in the first quarter of fiscal 2008 and $7.00 to $7.40 per diluted share for the full year, assuming an improvement in the U.S. economy beginning in the late summer or early fall. Earnings growth is expected to be below the company’s long-term 10% to 15% earnings growth target due to continued soft economic growth and to planned investments to expand the company’s networks and broaden its service offerings. Capital spending for fiscal 2008 is forecast to be approximately $3.5 billion, of which approximately 70% is targeted for growth.
The consensus estimate for next quarter was $1.66, with a full-year estimate of $7.39. Key to the forecast will be whether the economy does indeed improve in late summer or early fall. I think that is a tough call either way.
FDX 1-yr chart: