FedEx Loss Shakes Wall Street

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Grim quarter, '09 view indicate more struggles for economy

FedEx Corp. reported a loss for the fourth quarter and said it expects 2009 will be just as grim, sending a shudder through Wall Street on Wednesday.

The Dow Jones industrial average finished down more than 130 points after briefly dipping below the 12,000 mark for the first time since mid-March as the market digested how seriously the combination of fuel and low demand is affecting businesses and consumers alike.

FedEx shares fell $1.73, or 2.1 percent, to close at $82.60.

To shield itself, FedEx is parking planes temporarily and reducing flight hours. It is whittling expansion plans, giving customers better deals if they sign longer contracts and pushing for higher productivity.

"Record high fuel prices and the weak U.S. economy dampened volume growth and substantially affected our bottom line," said Frederick W. Smith, chairman, president and chief executive officer. "Great companies always improve their competitive position in economic downturns. We expect to do just that."

Including the $891 million charge for retiring the Kinko's name, the company lost 78 cents per share, or $241 million, compared with a profit of $1.96 per share, or $610 million, in the same quarter last year.
Excluding the Kinko's charge, FedEx earned $1.45 per share. Wall Street expected $1.47.

This is the first time FedEx has reported a losing quarter since 1997 when it lost 28 cents per share, or $40.4 million -- also in the fourth quarter -- because of an accounting charge, the company said.

"They didn't really lose money this time. This is about Kinko's," said Dan Ortwerth, an analyst at Edward Jones in St. Louis. "The Kinko's transaction was a noncash charge that is not reflective of operating results."

The cost to change the division name from FedEx Kinko's to FedEx Office reduced earnings $2.22 per share.

FedEx wrote off $515 million for the value of the name and took a $376 million charge for good will.

Although the loss stunned investors, company estimates of what it will earn this year sent the market down, Ortwerth said.

"All bets are off for how long this will last," he said. "The company's guidance is further confirmation of that."

FedEx expects to earn 80 cents to $1 per share in the current quarter and a range of $4.75 to $5.25 per share for the year ending May 31, 2009.

Wall Street expected $1.27 for the quarter and $5.92 for the year.

"That's a big difference," said Al Meyers, portfolio manager at AMBS Investment Counsel in Grand Rapids, Mich. He said the news "was shocking, but not surprising."

"What it tells me is that the balance of this year is going to be a wash for the overall economy, going into the first part of 2009," he said.

FedEx has long been considered a barometer of the overall U.S. economy. Its broadening networks around the globe are giving it the same bellwether status for the international economy.

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