© Reuters. FILE PHOTO: A FedEx Ground truck drives near a FedEx regional center at Los Angeles International Airport (LAX) in Los Angeles, California, U.S., September 16, 2022. REUTERS/Bing Guan
By Lisa Baertlein
LOS ANGELES (Reuters) – FedEx Corp (NYSE::) dented investor confidence in its new chief executive’s vision to bring about long-awaited change at the shipping company, sending shares back The company’s shares are in the free after withdrawing its full-year earnings forecast last week.
After Raj Subramaniam succeeded founder Fred Smith in June as CEO of FedEx, the Tennessee company generated goodwill by issuing a full-year profit forecast that beat expectations and strengthened pay dividends.
Investors, disappointed with last year’s overly optimistic estimates for the holiday shopping season, were disappointed with its profit warning on Sept. 15. At the end of that week’s trading, the stock’s price FedEx’s was more than 28% lower than Subramaniam’s. on his first day as CEO as investors questioned FedEx’s predictability.
“You can’t say everything is good, give guidance, raise dividends, and then blow shareholders away,” said Gary Bradshaw, a portfolio manager at Hodges Capital Management in Dallas.
FedEx said it will discuss the global economic outlook and results for the quarter ended August 31 in a conference call after the market close on Thursday.
Reuters spoke to Bradshaw and five other investors who bought FedEx stock when it looked cheap compared to its more profitable and better performing competitor. United Parcel Service (NYSE:), believes a business overhaul of FedEx promises good returns. Now, achieving that vision seems further than they had hoped.
Most of those investors, including one who sold most of his shares in January, still believe that FedEx can ultimately generate higher returns by reducing assets, cutting costs, and reducing costs. combines its independently operated Express and Ground businesses.
But patience is running thin, especially after UPS executives released their own forecasts this month.
Asked if last week’s warning had shaken his confidence in the new FedEx CEO, Bradshaw said, “100%. I wish I owned more UPS and forgot about FedEx.” Bradshaw said the company holds about 15,000 shares across accounts.
‘SO, SO GOOD’
Investors agree that business conditions are deteriorating due to softer e-commerce demand, soaring inflation, and ongoing COVID lockdowns on and off in China. But most people believe FedEx’s pain was largely self-inflicted, noting that it failed to land planes, close corporate offices and reduce unnecessary labor hours enough. quickly to compensate for the downturn.
“The drop in earnings doesn’t match the more modest revenue shortfall. The numbers don’t add up fully,” said David Katz, chief investment officer at Matrix Asset Advisors in White Plains, New York. . share.
Katz remains confident in FedEx for the long term, but he and other investors want to hear executives on Thursday detail what happened and how they will set things up right.
Analysts and investors have focused on the downturn in FedEx Express, where a deflationary e-commerce bubble has boosted lucrative demand for air freight to the United States from Asia, a sector in which the company has a larger footprint than UPS.
When FedEx said last week that Express first-quarter revenue would drop by $500 million, Deutsche Bank (ETR:) analyst Amit Mehrotra estimates that led to a similar drop in profits. He said in a research note that the one-for-one decline was “related to cost management ability”.
It’s worth noting that this news clarifies FedEx’s challenges. “That’s bad, it’s good,” Mehrotra said.
FedEx also said last week that it was grappling with challenges with its Express service in Europe, where its costly and difficult TNT integration is extending into its seventh year since the deal closed in June. 2016.
FedEx warned business conditions will worsen in the current quarter, which ends when the crucial Christmas delivery season begins. Warnings from FedEx and other players in the global cargo market have affected the year-end shopping season.
FedEx said first-quarter revenue for its U.S. Ground-delivery business will fall short of the company’s target of $300 million. Last year, the company overestimated growth for the Christmas 2021 season, damaging relationships with independent delivery contractors and leaving investors wondering if FedEx could model demand. effectively or not.
Late last month, FedEx told Reuters it was confident in its “stress-tested” holiday forecast for this year.
Trip Miller, managing director at Memphis-based hedge fund Gullane Capital Partners, said he doesn’t blame FedEx for its mistakes, but took profits by selling more than 90% of his stake in January when he saw warnings that demand was falling.
“They don’t spin this ship fast,” he said.