BusinessWeek is reporting a slowdown at FedEx.

Package delivery company FedEx said Mar. 21 that it’s been struggling to grow profits during recent months. Fuel costs cut into profits, while snowstorms made it tougher for trucks to deliver packages. And as the U.S. economy slowed, customers who might have insisted on shipping everything overnight express during easier years downgraded to less expensive services.

Buffeted by such factors, the Memphis (Tenn.) company’s net income during the third quarter ended Feb. 28 fell 2% from a year ago to $420 million. “The U.S. economy grew at a lower rate than we expected in the third quarter, and we saw continued adjustments in the automotive and housing markets,” said CEO Frederick W. Smith in a press release March 21.

Still, FedEx’s Smith promised better times ahead. He called the U.S. economy’s recent performance “a healthy transition” as it “phases into a more sustainable growth rate.”

FedEx Summary

  • Shipping volume down
  • Customers seeking cheaper alternatives (cutting back on overnight)
  • Economy slowing and FedEx did not see it
  • Denial about the future

Bloomberg is reporting Motorola ‘Running Out of Scapegoats’ as Profit Fades.

Motorola Inc. Chief Executive Officer Ed Zander, once heralded as a turnaround artist for reviving the mobile-phone maker, may be falling out of favor.

Zander yesterday forecast a loss for this quarter and the first sales decline in four years. The stock slid to its lowest level in almost two years.

“He’s running out of scapegoats,” said John Krause, an analyst at Thrivent Financial for Lutherans in Minneapolis, which owns 1 million Motorola shares. “The buck’s got to stop at the top. People are losing patience.”

Earnings and revenue this year will be “substantially” below its forecasts because of plunging mobile-phone prices, Schaumburg, Illinois-based Motorola said yesterday. Zander, who already is cutting 3,500 jobs, said the company will overhaul marketing and product design to make its prices competitive without sacrificing earnings.

Zander, a 60-year-old former Sun Microsystems Inc. executive with a fondness for Armani suits, said he plans to introduce “feature-rich” phones and refocus the company’s marketing message away from sleek design to the tasks users can do with the device.

“We need to get back to the things we do best around innovation, operational discipline and execution,” Zander said in an interview. “And we’ve got to get it right in all three areas.”

Zander said he plans to reduce spending on chips and trim the cost of designing products after Motorola said it would miss sales forecasts for a third straight quarter amid price cuts in emerging markets such as India.

“We didn’t react fast enough,” Zander said.

Motorola expects a loss of 7 cents to 9 cents a share, its first loss since 2004, on revenue of $9.2 billion to $9.3 billion this quarter. Motorola didn’t provide new full-year figures.

“I never would have thought that they would go into a money-losing situation,” [said Albert Lin, an analyst at American Technology Research in San Francisco].

Zander’s [previous] answer was the Razr, a slim, all-metal design that was an epitome of cool and sold for $499 when it came out two years ago, at least twice as much as many phones Motorola made. The Razr, overshadowed by sleeker, cheaper models from Nokia and Samsung Electronics Co., now sells for as little as $29.99.

Questions for Motorola

  • So the “epitome of cool” has dropped in price from $499 to $29.99. How cool is that?
  • Did the price of plastic, chips, copper, or any other ingredients in a phone drop in price that much over the last two years? Did it matter?
  • Zander claims Motorola “needs to get back to the things we do best around innovation, operational discipline and execution. Exactly when was that?
  • “We didn’t react fast enough” Zander said. Hmm. When did Motorola last react fast enough?

Motorola is reporting is a whopping 94% drop in the price of cool. Welcome to global phone technology glut revisited. How many more features can be packed into a phone anyway?

CFC Begging for more Subprime Pain

Reuters is reporting Countrywide 2006 failed subprime loans could be new worst.

Countrywide’s subprime mortgage defaults for 2006 loans may exceed the company’s highest on record, a company executive told a government panel examining mortgage lending.

Countrywide’s “worst single origination year was 2000, for which the cumulative foreclosure rate was 9.89 percent,” Sandor Samuels, the company’s executive managing director, said in prepared remarks.

“We believe that declining home prices and other factors … may produce foreclosures numbers on 2006 originations approaching or exceeding those on loans originated in 2000,” Samuels said in remarks.

The company believes that there was overcapacity in the mortgage market in 2004, the company said, and does not agree with federal regulators that borrowers should be approved at the “fully indexed rate” that considers the long-term costs of the loan.

Countrywide is not close to the reality phase yet. I base that statement on the comment CFC “does not agree with federal regulators that borrowers should be approved at the ‘fully indexed rate’ that considers the long-term costs of the loan.

Not looking at borrowers’ ability to repay loans is just what got CFC and every other subprime lender into hot water in the first place. That they see no need to take fully indexed rates into consideration says that they are begging for more pain down the road.

Kiss No Down Payments Goodbye

Bloomberg is reporting Subprime Meltdown Snares Borrowers With Better Credit.

The subprime credit crunch is beginning to ensnare even borrowers with better credit. Lenders are increasingly refusing to lend to homebuyers who can’t make a down payment of more than 5 percent, especially if they won’t document their income.

“It’s going to be very difficult, if not impossible, to do a no-money-down loan at any credit score,” said Alex Gemici, president of Parsippany, New Jersey-based mortgage bank Montgomery Mortgage Capital Corp. Companies that buy the loans “are all saying if they haven’t eliminated them yet, they’ll eliminate them shortly.”

Bear Stearns Cos., General Electric Co.’s WMC Mortgage, Countrywide Financial Corp., IndyMac Bancorp Inc., Goldman Sachs Group Inc., Lehman Brothers Holdings Inc. and Credit Suisse have all said in the last two weeks they’re pulling back from buying Alt A mortgages sold with no down payment or in a refinancing of the house’s entire value.

So another chunk of marginal buyers just went out the window. Who was it that said this mess would be contained?

Choppy Growth?

MarketWatch is reporting Leading economic indicators declined 0.5% signaling choppy growth.

The economy is likely to grow at a moderate but “choppy” pace in the coming months, the Conference Board said Thursday upon the release of the index of leading economic indicators. The index fell 0.5% in February, close to the 0.4% drop expected by economists surveyed by MarketWatch. Four of the 10 indicators increased in February. The index is up 0.2% in the past six months. “The housing and manufacturing sectors are clearly going through a correction, but the consumer sector appears to be holding up,” said Ken Goldstein, labor economist for the private research organization, in a press release. “That mix should generate moderate but choppy growth ahead.”

Another chunk of potential home buyers went out the window, better late than never, and with that, things (already choppy) will get choppier and choppier as the year rolls on.

Mike Shedlock / Mish/