The world’s largest air cargo shipper, FedEx Corporation (NYSE:FDX), has lowered its first quarter earnings estimates to $1.37-$1.43, from $1.45-$1.60. The transportation bellwether is expected to report its quarterly results on September 18. FedEx has cited the sharp slowdown in global manufacturing activity and rising jet fuel prices as the primary reasons. The jet fuel prices are up 22 percent between June 19, 2012 and August 31, 2012.

Fedex Logo

The company’s shares fell 3 percent in premarket trading to $85 per share. FedEx Corporation (NYSE:FDX) ships everything from toys to luxury cars to pharmaceutical products across the globe. Its underperformance is a clear warning sign that the manufacturing activities and exports are grinding down. FedEx Corporation (NYSE:FDX), along with United Parcel Service, Inc. (NYSE:UPS), has become a measure to track economic activities. If global manufacturing is strong, people will move and sell their stuff, then FedEx Corporation (NYSE:FDX) and United Parcel Service, Inc. (NYSE:UPS)’s results are pretty good.

The poor FedEx Corporation (NYSE:FDX) estimates reflect that the Eurozone crisis is not confined to PIIGS, it is directly affecting the U.S. and China as well. Global air freight volume declined 3.2 percent in July from a year ago. The recently released Chinese manufacturing data shows that manufacturing is declining at its sharpest pace since March 2009. The country’s official manufacturing PMI fell to 49.2 in August, compared to 50.1 in July. A PMI below 50 reflects contraction in the economy.

Meanwhile, FedEx is planning to unveil its U.S. Domestic Express restructuring plan during a meeting with investors and lenders in October. The company is analyzing asset utilization, domestic aircraft fleet, workforce levels, and fuel prices. Deutsche Bank analyst Justin Yagerman believes that the restructuring would involve replacing the older, less fuel efficient aircraft with new ones, workforce reduction, and salesforce/customer education.

Deutsche Bank has lowered its own estimates for FedEx EPS in 2013-14 to $7.12 from 7.40. FedEx shares are up 4.8% YTD. Despite lowering its estimates, Deutsche Bank still maintains Buy rating on FedEx with a target price of $115.

BMO capital markets is less bullish noting;  Higher Jet Fuel Prices Were A Headwind To FDX’s FQ1 EPS. While FDX has a fuel surcharge mechanism that helps insulate the company from higher fuel prices, the lag effect (roughly 2 months) and the company’s large aircraft fleet likely created a FQ1 2012 earnings headwind given the recent run-up in jet fuel prices. The price of jet fuel increased 22.2% between June 19, 2012 (the date FDX issued its previous FQ1 2013 guidance) and quarter end on August 31, 2012. We note that FDX’s FQ1 2013 EPS guidance of $1.45-1.60/share assumed flat fuel prices in the quarter.