The earnings report from
FedEx
(
FDX
) this morning puts the spotlight back on the global growth worries
that were drowned out hoopla surrounding the QE3 announcement.
Investors seem to think of QE3 as the panacea that Bernanke was at
pains to point out it was not. The Fed's new program hasn't had
much chance to do its magic on the economy yet, but one can
reasonably assume that it is largely irrelevant to the type of
issues facing global bellwether operators like FedEx.
FedEx came ahead of the lowered guidance it provided two weeks
back. But whatever that positive surprise is worth, it is more
offset by lowered guidance for the current quarter and full fiscal
year. The company's ecommerce centric package delivery business
seems to be doing fine and would like get further lift in the
current period in strong demand for
Apple's
(
AAPL
) iPhone 5 demand. It is the international air freight business
that accounts for more than 60% of the firm's revenue which is
facing weakening demand as a result of the worldwide economic
slowdown.
We will likely see more about this theme of weak economic
backdrop weighing on corporate profitability as the third quarter
earnings season gets underway. Estimates are for earnings to drop
3.9% from the same period last year, which reflects a roughly
equivalent drop in revenues and flat margins. This is the weakest
earnings growth outlook at the start of a reporting season that we
have seen since late 2009. Expectations are for a turnaround in the
fourth quarter, with earnings expected to increase a solid 7.9%.
For next year, the consensus expectation is for growth of about
10%, on top of the high single digits growth this year. Count me as
skeptical of these forecasts. With growth a problem all over the
world, these growth expectations may not be much different than
'hoping for the best'.
Technically speaking, the third quarter reporting season started
today with the FedEx report, though the market starts paying
attention only after
Alcoa's
(
AA
) results next month. We still have some time to go before then.
But I would be surprised if the market can build on its recent
gains in this time period. And hardly anyone would find the key
take-away from the actual reporting season to be reassuring enough
to sustain the gains made in recent days. Bottom line, this fall
may not be that kind to the stock market.
To read this article on Zacks.com click here.
Zacks Investment
Research