What FedEx Earnings Say About the Global Recovery

At the end of last week Federal Express reported Q3 earnings. Rarely are corporate earnings reviewed closely by currency strategists, but this report seems to shed light on the global economic recovery.

Fedex, like others in this space, typically do well in the beginning of economic recoveries. Its quarterly profit more than doubled due to a strong pick-up in Asian export volumes. The high profit-margin "International Priority" business jumped almost 18%. The volume of daily domestic packages was up a little more than 1%. This would seem to confirm the relative strength of the Asian economies and the improved trade flows.

While the 1% growth in domestic volume points to a US economy lagging behind Asia, there were other details of the Fedex report that are more promising. First, it raised its capital spending plans by more than 10% to $2.9 bln. This reportedly includes taking a Boeing aircraft out of storage in the desert and returning it to service.

Second, Fedex indicated that it would reinstate some employee compensation schemes that had been cut in response to the recession. The company said it could effect Q4 earnings and earnings into 2011. It forecast 2010 earnings at $3.60-$3.80 a share compared with $3.45-$3.75 previously.

UPS reported in early Feb and it too reported a strong performance in its international division. Domestic volumes were lagging.

To be sure this is not a recommendation on a particular stock or industry. Rather the point is that these corp earnings are confirming the macro-view of increased trade and the economic leadership in Asia.

While core measures of inflation are falling in the major industrialized countries, price pressures are rising in Asia. Malaysia and India have already hiked rates. China has tweaked monetary conditions, but have thus far stopped shy of an formal rate hike.

Although domestic business is weaker, Fedex's news of increased capex and compensation adjustment appears promising. In this context, it is interesting to note that the market is generally expected a strong US jobs report on April 2nd. The consensus is near 200k, with at least two large investment houses forecasting 300k or better.