Sharp falloff in express demand to hurt shippers
Demand for express shipping is deteriorating rapidly with the economic downturn.
Demand for express shipping is deteriorating rapidly with the economic downturn.
Shipping is viewed as a benchmark for the economy, reflecting overall gross-domestic-production growth or contraction. Earlier, the International Air Transport Association forecast a 5% drop in cargo shipping for 2009, the first in decline in growth in eight years.
Late Monday, FedEx Corp. cut its fiscal-year outlook to a range of $3.50 to $4.75 a share from a prior range of $4.75 to $5.25 a share, citing declines in the express market. That’s an unanticipated 17% drop in next year’s earnings, wrote Thomas Wadewitz, an analyst with J.P. Morgan.
“Our sense is that the decline in the overall market is very sharp,” he said in the Tuesday note.
Wadewitz maintained a neutral rating on FedEx’s stock, but he cut his rating for United Parcel Service Inc. to neutral from overweight.
“We expect meaningful support for UPS’s fourth-quarter results from the sharp decline in fuel prices and the two-month lag in their surcharge, and looking forward, DHL’s withdrawal from the U.S. market should provide meaningful support for UPS’s air express volumes,” Wadewitz said.
“However, based on both the FDX comments and other transport-demand data points, it appears that parcel-market weakness will likely overwhelm the other positives.”
Shares of UPS fell 7% to close at $54.51, while FedEx shares fell 14.5% to $63.65.
