Each Monday, I will identify, dissect and deconstruct what are bound to be major stock stories of the coming week. Keep your eyes peeled.
FedEx (FDX) is due to report its earnings on Thursday and you can set your watch by this: traders and the media will be flapping their gums about how the delivery giant is an economic bellwether, a harbinger of whatever is to come in the economy.
You, though, need to operate on a deeper level. Even though the quick-hit conclusions about FedEx's earnings will probably skip it over, there are several new dynamics at play.
The growth rate of air freight is far outpacing economic growth. Pick your survey or statistic, but online retail is exploding, taking an ever-increasing share of the retail market, with FedEx - and UPS - direct beneficiaries. But this secular change in consumer behavior means that FedEx is less of a straight economic indicator. It's in the right place at the right time. That takes nothing away from FedEx (quite the contrary) but it means it does not stand for the entire American economy. Old habits die hard, though, so you'll still hear a lot of the bellwether nonsense. Do your best to ignore it. It can only serve to mislead.
FedEx profits have benefited in recent quarters (last June comes to mind in particular) from cost cuts, but flush profits based on cost cuts are a second class to citizen to profits based on something sustainable, like growth. Make the distinction, even when others do not. And never confuse a cost-cut quarter from one that says a lick about economic growth.
Keep your eyes peeled for the impact of higher shipping rates, which say more about FedEx strategies than the larger issue of economic growth.
If you want to try to get a bead on the U.S. economy, you are probably better off examining Nike (NKE), which also reports Thursday. But if, for old time's sake, you want FedEx to stand as a bellwether, do it with a more impressionistic view than in the past. Look at its U.S. shipments numbers. If (taking, for convenience sake, last June again) they are flat as a pancake, well, that bodes poorly for the American economy. With the inexorable move toward online shopping and all the extra shipping that entails, FedEx needs to show considerable growth in U.S. shipments to say anything decent about the American economy. There's no longer a direct relationship. No matter what everyone says this week about FedEx being a classic bellwether, it is anything but. Don't be fooled by all the chatter you hear. It is little more than a product of the past, dated perceptions.
