Troubling Signs From the Transports

 | Sep 06, 2012 | 4:00 PM EDT  | Comments
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Stock quotes in this article:

fdx

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ups

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cnw

On "Jim Cramer's Mad Money" on Tuesday, Jim said that he thought the earnings pre-announcement from FedEx (FDX) would sink the stock and the market. It didn't. In fact, today the market is blasting higher. 

Jim eventually came to the conclusion that the FedEx news wasn't much of a surprise, since United Parcel Service (UPS) missed a few weeks ago, and the stock market is looking ahead toward better times anyway. But is the stock market simply whistling past the graveyard?

On Wednesday, FedEx lowered its guidance. The company said first-quarter earnings per share would be in the range of $1.37 to $1.43, compared with $1.46 per share a year ago and the company's original forecast of $1.45 to $1.60 per share. Management attributed the lower guidance to weakness in the global economy. The company will provide more detail when it releases its first-quarter earnings on Sept. 18.

At the end of July, UPS missed the quarter by $0.02. Revenue rose just 1.2% to $13.35 billion. Management slashed its guidance for fiscal 2012 to $4.50-$4.70 from $4.75-$5.00. The company cited weakness in its international business, specifically Europe and weakness in Asia exports. 

International makes up 47% of revenue at FedEx, while international makes up just 26% of revenue at UPS. UPS announced in March that it would buy the Dutch delivery giant TNT Express for about $6.8 billion. After the deal closes, UPS will get 36% of its revenue from outside the U.S.

None of this weakness should be a surprise. At the beginning of August, less-than-truckload shipper Con-Way (CNW), despite beating the Street consensus estimate by $0.06, saw its shares taken to the woodshed, falling 17% in one day. The trucking company said weakness in the U.S. economy was responsible for the lackluster results, but the company said it was hopeful that business would pick up during the holiday season.\

And then there's the garbage indicator. Last week, Economist Michael McDonough of Bloomberg Briefs showed off his "garbage" indicator. McDonough argued there's a close correlation between the American Association of Railroads' waste carloads indicator and GDP. And right now, waste carloads are down, pointing to a slower U.S. economy. Less garbage, lower GDP. (I guess the saying in the garbage-disposal industry that "business is always picking up" isn't true after all!)

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