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BUSINESSThursday 17 September
Wall Street advances ahead of Fed decision FedEx Q1 results are mixed,
KEN SWEET
AP Business Writer
NEW YORK (AP) — Stocks
posted solid gains Wednes-
day ahead of a closely
watched decision by the
Federal Reserve on wheth-
er or not to raise interest
rates.
Beer companies gained
on word of a possible deal
between two giant brew-
ers, and energy stocks
rose sharply following a big
jump in the price of oil.
The Dow Jones industrial
average rose 140.10 points,
or 0.8 percent, to 16,739.95.
The Standard & Poor’s 500
index rose 17.22 points, or
0.9 percent, to 1,995.31
and the Nasdaq compos-
ite added 28.72 points, or
0.6 percent, to 4,889.24.
Investors have been specu-
lating about when the Fed-
A visitor to the financial district walks past the New York Stock Exchange, Wednesday, Sept. 16,
2015. Stocks posted solid gains Wednesday ahead of a closely watched decision by the Federal
Reserve on whether or not to raise interest rates.
eral Reserve will raise inter- China’s economy, investors
est rates for months. The
Fed started its two-day pol-
icy meeting Wednesday
and will announce its de-
cision Thursday afternoon,
which will be followed by
a press conference by Fed
Chair Janet Yellen.
Interest rates have been
near zero since 2008, when
the Fed cut rates sharply in
response to the financial
crisis and Great Recession.
The Fed’s low interest rate
policy was designed to
encourage lending, but it
also helped drive a seven-
year bull market in stocks
by making bonds, CDs
and other interest-bearing
investments less attrac-
tive, driving investors to put gium. A combination of the
money into the stock mar-
ket.
“If they raise tomorrow, it’s
going to be nasty for the
stock market. Much of the
rally back has had much
to do with investors believ-
ing the Fed isn’t going to
move,” said Tom di Galo-
ma, head of fixed income
rates trading at ED&F Man
Capital.
Investors’ opinions are
mixed on the chance of a
rate increase. Two months
ago, it seemed almost cer-
tain that the Fed was going
to raise rates in Septem-
ber. Now, after the turmoil
in financial markets in Au-
gust over concerns about
are far less certain.
“I just don’t think the econ-
omy is strong enough and
inflation remains too low to
justify a rate increase,” di
Galoma said.
Stocks have been rising
steadily ahead of the Fed’s
meeting. Investors have
said that stocks recovered
partly because the chanc-
es of an interest rate hike
diminished.
In company news, SAB-
Miller, a major beer maker
whose brands include Mill-
er and Foster’s, jumped 20
percent in London after the lowering fiscal 2016 outlook
company said it received
a takeover offer from An- DAVID KOENIG
heuser-Busch InBev of Bel- AP Business Writer
DALLAS (AP) — FedEx reported disappointing results
two would create a mas- for its latest quarter, and the delivery giant cut its full-
sive conglomerate worth year profit forecast on weaker demand for freight
$275 billion. Any potential services and higher costs in its ground division.
deal would be heavily scru- The company also said it plans to hire more than
tinized by regulators. 55,000 seasonal workers for the holidays, an increase
U.S.-traded shares of AB of at least 5,000 over last year’s plan.
InBev rose $7.39, or 7 per- Its shares fell almost 4 percent in afternoon trading.
cent, to $115.43. Other FedEx Corp. said that it expects to earn between
beer makers also rose. Mol- $10.40 and $10.90 for the fiscal year that ends next
son Coors jumped $10.34, May, down 20 cents from an earlier prediction. Ana-
or 14 percent, to $82.98. lysts expected $10.84, according to a survey by Fact-
Energy stocks also rose af- Set.
ter a steeper-than-expect- The reduced outlook comes despite cost-cutting
ed drop in crude invento- moves, growth in online commerce, and upcom-
ries sent oil prices sharply ing price hikes. Rates for express, ground and freight
higher. shipments will rise by average 4.9 percent on Jan. 4,
U.S. benchmark crude and surcharges for oversized packages will go up in
jumped $2.56, or 5.7 per- November, before the peak holiday season.
cent, to $47.15 a barrel on Chairman and CEO Fred Smith said the Memphis,
the New York Mercantile Tennessee-based company was “performing solidly
Exchange. Brent crude, a given weaker-than-expected economic conditions,
especially in manufacturing and global trade.”
Smith blamed the earnings miss and the lower profit
forecast on FedEx raising its set-aside for self-insur-
ance.
“The whole thing about the quarter is one issue; it’s a
(AP Photo/Mary Altaffer) self-insurance reserve,” he said on a conference call
with analysts. “All the rest of the stuff is just noise and
benchmark for many inter- various issues inside the operating company.”
national types of oil import- Analysts pointed out that the self-insurance reserve
ed into the U.S., gained $2, has hurt results two straight quarters. FedEx did not
or 4.2 percent, to $49.75 a provide a figure for the higher insurance reserve, but
barrel in London. a spokesman said it was included in a line for “other”
The Energy Information costs that totaled $453 million in the quarter, an in-
Administration said U.S. oil crease of $201 million from a year earlier.
supplies fell last week by a Smith also complained that FedEx didn’t set earnings
steeper-than-expected 2.2 targets; analysts did. The company could be paying
million barrels. Analysts sur- the price for being a longtime Wall Street favorite.
veyed by Platts expected “When you become beloved by the Street, the
a decline of 200,000 bar- downside is it’s harder and harder to meet those el-
rels. The plunge follows evated expectations,” said Logan Purk, an analyst
news that oil drillers in the with Edward Jones. “That’s part of the reason that
U.S. are cutting production FedEx has missed (earnings forecasts) the last couple
in the face of low oil prices. quarters.”
Oil company stocks fol- Purk said in an interview that the company must
lowed crude oil higher. q boost margins in its ground business, which have
been hurt by a low-margin acquisition, and would be
helped by any improvement in the global economy
and trade.
The holiday-hiring plans were announced a day after
rival UPS said that that it plans to hire 90,000 to 95,000
extra workers, about the same that it hired last year.
FedEx executives said they expect a record holiday
season and have been talking to retailers to smooth
out peak delivery days. In recent years, free-shipping
promotions right up to Christmas have encouraged
consumers to shop online later and make it harder
for FedEx and UPS to predict and plan for the busi-
est days.
In the quarter that ended Aug. 31, FedEx earned
$692 million, up 6 percent from a year earlier. Earn-
ings per share amounted to $2.42, short of the $2.44
per share average forecast of 12 analysts surveyed
by Zacks Investment Research.
Revenue rose 5 percent, to $12.3 billion. Six analysts
surveyed by Zacks expected $12.23 billion.q