FedEx Freight, a division in FedEx Corporation (NYSE:FDX) recently just announced that they will be increasing their shipping rates by 6.9% and the rate increase goes into effect on July 9, 2012. The shipping increase will only apply to shipments that are made within the US, US to Canada and within Canada. However, the increased rate also applies if you are shipping from the US to overseas.
FedEx may be seeing more shipping costs but fuel prices have been much lower than they were earlier in the year which is great for shippers such as FedEx. However, as an international company, they are facing headwinds in other particular areas such as Europe and Asia. To pick up the slack, they needed to increase the rates in North America, where there is currently more economic stability.
The shipping company reports its fourth quarter earnings on July 19th. Analysts are looking for revenue of $11.13 billion on an EPS of $1.92. It is important to note that FedEx has met or exceeded analyst estimates in the previous four quarters. However, as we can see but the Put/Call ratio, investors are expecting an earnings miss based on the commentary I gave above.
In an article that I did earlier today on McDonald’s sales hit in May, I said that it is a good idea to look at big multi-national corporations such as McDonald’s Corporation (NYSE:MCD) and FedEx to determine the economic conditions around the world. McDonald’s proved that consumers are weak right now. FedEx could be a determination of how businesses are doing in this world economy right now. Chances are though that we could see FedEx say something similar when it releases earnings later this month.
From a fundamental standpoint, FedEx has some solid numbers. The company has a P/E of 13.5, forward P/E of 12 and a PEG of .9. According to FedEx’s P/E range over the past 5 years (high of 178 and a low of 17) and the PEG ratio, the company is undervalued. The company has some debt but nothing unmanageable at a total debt to equity of 10.
The bottom line here is that FedEx is a solid company but today’s rate increases could foreshadow the company’s earnings miss. FedEx clearly is facing some pressure from China and Europe as conditions are not ideal right now. Despite being undervalued, will FedEx fall further on a weak outlook?