Wednesday, September 19, 2012

Transport Company Warnings Not Positive Sign For Global Economic Growth

Over the course of the last two days, both FedEx (FDX) and Norfolk Southern (NSC) have issued significantly lower earnings guidance. In the case of FDX, the warning may be more of a concern given the global nature of their business. Additionally, the link between FedEx package shipments and YOY GDP growth suggests the global economy is experiencing a significant slowdown.

From The Blog of HORAN Capital Advisors

In the case of Norfolk Southern, after today's market close, the company lowered their 3Q earnings guidance to a range of $1.18 - $1.25. This compares to original 3Q guidance of $1.62 and 3q 2011 earnings of $1.59. Not surprisingly, the stock initially fell over 6% in after hours trading to $68 share before recovering to $69 per share. The Wednesday closing price for NSC was $72.69.

From The Blog of HORAN Capital Advisors

A recent Wall Street Journal report tht discussed the FDX earnings revision noted, "It isn't just FedEx. Data gathered by the CPB Netherlands Bureau for Economic Policy Analysis show that global trade volumes grew an unusually low 2.6% in the second quarter compared with a year earlier; the average pace over the past 20 years has been 6.1%. The two major West Coast ports, the ports of Los Angeles and of Long Beach, Calif., reported that outbound container volumes fell by 4.1% in August from a year earlier. That was the steepest drop since September 2009."

The lower earnings guidance by both of these companies and the West Coast port data are indications of slower economic growth, if not growth that is more indicative of a recessionary environment.

Disclosure: Long NSC

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