1 00:00:00,160 --> 00:00:03,760 Speaker 1: This is Bloomberg Business Week with Carol Messer and Jason 2 00:00:03,840 --> 00:00:07,520 Speaker 1: Kelly on Bloomberg Radio. Well, fed X is one of 3 00:00:07,520 --> 00:00:12,720 Speaker 1: the names people are watching after the bell beating estimates 4 00:00:12,800 --> 00:00:16,799 Speaker 1: for the third quarter, suspending their outlook. No big surprise there. 5 00:00:17,000 --> 00:00:20,319 Speaker 1: Let's get into with Lee Classgow Bloomberg Intelligence. He joins 6 00:00:20,400 --> 00:00:23,360 Speaker 1: us on the phone. Lee, great to have you with us. First, 7 00:00:23,440 --> 00:00:27,120 Speaker 1: I trust all is well and healthy with you. Yes, 8 00:00:27,240 --> 00:00:30,760 Speaker 1: I'm working, uh in the home office today. There you go, 9 00:00:30,880 --> 00:00:33,960 Speaker 1: me too, Me too. Alright, So tell us tell us 10 00:00:33,960 --> 00:00:36,919 Speaker 1: what you saw from FedEx, because you know, a lot 11 00:00:36,960 --> 00:00:39,919 Speaker 1: of times people are coming out with numbers and investors 12 00:00:39,920 --> 00:00:43,440 Speaker 1: are running for the hills. Not so here. Yeah, let's listen. 13 00:00:43,479 --> 00:00:45,519 Speaker 1: So in the third in their third quarter, I mean 14 00:00:45,560 --> 00:00:48,760 Speaker 1: they had some I gut some good news if you will. Um, 15 00:00:49,120 --> 00:00:52,200 Speaker 1: they'd beat expectations, but I would caveat that and saying 16 00:00:52,200 --> 00:00:56,040 Speaker 1: that expectations have been extremely low for fed X. Uh, 17 00:00:56,080 --> 00:01:00,040 Speaker 1: they've kind of disappointed the streets. For um. If you 18 00:01:00,080 --> 00:01:01,800 Speaker 1: look at the last twelve months, I mean, their stock 19 00:01:01,960 --> 00:01:05,720 Speaker 1: is vastly underperformed the SMP the stocks down about forty 20 00:01:05,920 --> 00:01:09,880 Speaker 1: percent versus the SMPS down around over the last twelve months, 21 00:01:09,920 --> 00:01:12,920 Speaker 1: and that compares with the UPS, which is underperformed the SMP, 22 00:01:13,040 --> 00:01:15,600 Speaker 1: but just by a hundred basis points. So, um, you know, 23 00:01:15,680 --> 00:01:18,520 Speaker 1: fed X has kind of had a couple of quarters 24 00:01:18,520 --> 00:01:22,360 Speaker 1: of where they've disappointed and the kind of the trends 25 00:01:22,400 --> 00:01:26,240 Speaker 1: that we've been seeing to create that disappointment haven't gone away. 26 00:01:26,640 --> 00:01:30,840 Speaker 1: I mean, they're seeing weaker economic demand. UM, they're seeing uh, 27 00:01:30,920 --> 00:01:33,920 Speaker 1: you know, higher costs because they're expanding their ground service 28 00:01:34,000 --> 00:01:37,640 Speaker 1: to six and seven days delivery. We all knew about 29 00:01:37,680 --> 00:01:41,880 Speaker 1: the Amazon business that they lost on the UPS picked up. Um, 30 00:01:41,920 --> 00:01:44,600 Speaker 1: they're they're talking about, you know, a mixed shift to 31 00:01:44,760 --> 00:01:48,160 Speaker 1: to lower yielding UH packages which is B two C 32 00:01:48,520 --> 00:01:51,360 Speaker 1: versus B two B. These are all things we know about. 33 00:01:51,520 --> 00:01:53,560 Speaker 1: These are all things that are going to weigh on 34 00:01:53,640 --> 00:01:57,000 Speaker 1: the company in the coming quarters. UH. And they also, 35 00:01:57,120 --> 00:01:59,640 Speaker 1: you know, it's relatively you know now that the CFO 36 00:01:59,760 --> 00:02:05,040 Speaker 1: is upping aside the team under the current UH president 37 00:02:05,080 --> 00:02:08,359 Speaker 1: CEO Raj it's kind of needs to coll us a 38 00:02:08,360 --> 00:02:12,000 Speaker 1: new management team. You know, everyone there have been in 39 00:02:12,040 --> 00:02:15,280 Speaker 1: their positions for now for less than two years, so 40 00:02:15,400 --> 00:02:18,160 Speaker 1: you know, they really have a lot to prove. UM 41 00:02:18,320 --> 00:02:20,880 Speaker 1: and what what I would say, is that you know, 42 00:02:20,919 --> 00:02:23,080 Speaker 1: on the good news for them in the coming months 43 00:02:23,160 --> 00:02:25,799 Speaker 1: is while you know, COVID nineteen is definitely going to 44 00:02:25,880 --> 00:02:29,720 Speaker 1: be a strain on the global economy and demand, um, 45 00:02:29,760 --> 00:02:33,359 Speaker 1: you know, it does drive the need for expedited freight. 46 00:02:33,520 --> 00:02:35,880 Speaker 1: So you know, if you if you need products, it 47 00:02:35,960 --> 00:02:40,160 Speaker 1: gets to sell and it makes economics sense to do 48 00:02:40,200 --> 00:02:43,280 Speaker 1: it uh in the air or you know one day 49 00:02:43,320 --> 00:02:45,520 Speaker 1: delivery on the ground. You know you're going to use 50 00:02:45,560 --> 00:02:48,760 Speaker 1: the fed X or UPS or another expedited kind of 51 00:02:48,840 --> 00:02:53,160 Speaker 1: kind of methods. So that's interesting, could be good for them. 52 00:02:53,280 --> 00:02:55,560 Speaker 1: The snap Act can be very good for them. And 53 00:02:55,600 --> 00:02:58,520 Speaker 1: if you know, they get T and T integration right, 54 00:02:58,639 --> 00:03:00,760 Speaker 1: which is the big M and A that they did 55 00:03:00,800 --> 00:03:03,880 Speaker 1: a couple of years ago, which has kind of been 56 00:03:03,919 --> 00:03:10,720 Speaker 1: hamstrung by a cyber attack that hit that business unit. Um, 57 00:03:10,800 --> 00:03:13,880 Speaker 1: you know, they're finally you know, getting some synergies that 58 00:03:13,919 --> 00:03:16,280 Speaker 1: would stay in that business. Uh. You know, in the 59 00:03:16,320 --> 00:03:19,880 Speaker 1: next twelve months, hopefully that will improve. Uh. And then 60 00:03:20,040 --> 00:03:22,560 Speaker 1: you know, we are seeing or hearing that you know 61 00:03:22,639 --> 00:03:25,760 Speaker 1: that the Chinese economy is getting back to quote unquote 62 00:03:25,760 --> 00:03:30,680 Speaker 1: a more normal uh production level. Obviously they're not a yet, 63 00:03:31,360 --> 00:03:35,800 Speaker 1: but you know, anecdotally that's around seventy five. So you know, 64 00:03:35,960 --> 00:03:39,160 Speaker 1: as that all as the stuff comes off the assembly line, 65 00:03:39,640 --> 00:03:41,760 Speaker 1: it's got to get to the shelves because if anyone's 66 00:03:41,800 --> 00:03:45,600 Speaker 1: been to a grocery store or a costco lately, you know, 67 00:03:45,680 --> 00:03:48,360 Speaker 1: those shelves are pretty barren, especially when it comes to 68 00:03:48,360 --> 00:03:51,440 Speaker 1: the toilet paper and hand sanitizer. All right, So a 69 00:03:51,480 --> 00:03:53,840 Speaker 1: few questions. They got thirty three billion worth of debt 70 00:03:53,840 --> 00:03:56,080 Speaker 1: and I'm assuming some of that is because of that acquisition. 71 00:03:56,120 --> 00:03:57,920 Speaker 1: I mean, is that manageable? Is this something that we 72 00:03:57,960 --> 00:03:59,640 Speaker 1: have to worry about that this is gonna be another 73 00:03:59,680 --> 00:04:02,720 Speaker 1: company that's a tap a credit line or do something 74 00:04:02,800 --> 00:04:05,520 Speaker 1: like do we have to be nervous about that debt 75 00:04:05,520 --> 00:04:09,440 Speaker 1: load for FedEx? No, because they do have some flexibility 76 00:04:09,440 --> 00:04:12,000 Speaker 1: and their tap x UM. You know, they can delay 77 00:04:12,120 --> 00:04:16,000 Speaker 1: the delivery of planes if they wanted to. Uh, they 78 00:04:16,000 --> 00:04:19,680 Speaker 1: can slow down some of the money that they've been 79 00:04:19,720 --> 00:04:24,960 Speaker 1: spending in redesigning and upgrading um their networks to increase 80 00:04:25,000 --> 00:04:27,720 Speaker 1: the amount of automation that takes place. So they do 81 00:04:27,920 --> 00:04:32,440 Speaker 1: have some flexibility. Uh. And at the end of the day, 82 00:04:32,480 --> 00:04:36,760 Speaker 1: they're still profitable, they're still cash so positive. Um, you know, 83 00:04:37,320 --> 00:04:40,359 Speaker 1: the world would have to be really bad, uh for 84 00:04:40,400 --> 00:04:45,880 Speaker 1: FedEx to have a liquidity issue at least from our standpoint. Um, 85 00:04:45,960 --> 00:04:47,919 Speaker 1: but you know, we've seen two black slawns in the 86 00:04:47,960 --> 00:04:51,880 Speaker 1: last two months, so who knows? All right, So what 87 00:04:51,960 --> 00:04:55,200 Speaker 1: do you worry about hearing when they hop on the 88 00:04:55,240 --> 00:05:00,440 Speaker 1: call with you guys Laterly, I'm really really curious about, 89 00:05:00,520 --> 00:05:04,839 Speaker 1: you know, how they um kind of quantify the financial 90 00:05:04,880 --> 00:05:07,920 Speaker 1: impact and COVID nineteen. You know, they're they're saying they're 91 00:05:07,920 --> 00:05:10,680 Speaker 1: not giving guidance anymore. And to be frank, that's a 92 00:05:10,680 --> 00:05:13,520 Speaker 1: good thing because they really gave some poor giants over 93 00:05:13,600 --> 00:05:17,000 Speaker 1: the last two years. They were adjusting it up or down. 94 00:05:17,320 --> 00:05:19,120 Speaker 1: So it's kind of a good thing that they're kind 95 00:05:19,120 --> 00:05:21,720 Speaker 1: of stepping away from that. But like just to get 96 00:05:21,760 --> 00:05:24,920 Speaker 1: them because I mean, their margins were just not good. 97 00:05:24,920 --> 00:05:29,240 Speaker 1: I mean their margins were two percent from a consolidated standpoint, 98 00:05:29,560 --> 00:05:32,760 Speaker 1: that's down over three hundred basis points. And you saw 99 00:05:32,760 --> 00:05:36,560 Speaker 1: that across the board. Their express business was down significantly. 100 00:05:36,760 --> 00:05:40,080 Speaker 1: The margins were only one point five percent, uh, and 101 00:05:40,120 --> 00:05:44,120 Speaker 1: then their ground margins, you know, we're almost down by 102 00:05:43,839 --> 00:05:46,280 Speaker 1: U they were down to about six point one percent 103 00:05:46,520 --> 00:05:48,720 Speaker 1: the one and when we're talking about margins. The one 104 00:05:48,760 --> 00:05:52,120 Speaker 1: group part of their business was set X Freight, which 105 00:05:52,160 --> 00:05:54,440 Speaker 1: is there left in truckload business. You know, a lot 106 00:05:54,440 --> 00:05:56,840 Speaker 1: of people don't realize that though they're the biggest lesson 107 00:05:56,880 --> 00:05:59,920 Speaker 1: truckload provider, and those margins went up on spaces point 108 00:06:00,040 --> 00:06:03,680 Speaker 1: from the quarter. Alright, Lee, we really appreciate your instant 109 00:06:03,520 --> 00:06:07,520 Speaker 1: a context leak Classgow follows FedEx for Bloomberg Intelligence, joining 110 00:06:07,600 --> 00:06:09,040 Speaker 1: us on the phone from home.