Speaker 1: This is Bloomberg Business Week with Carol Messer and Jason
Speaker 1: Kelly on Bloomberg Radio. Well, fed X is one of
Speaker 1: the names people are watching after the bell beating estimates
Speaker 1: for the third quarter, suspending their outlook. No big surprise there.
Speaker 1: Let's get into with Lee Classgow Bloomberg Intelligence. He joins
Speaker 1: us on the phone. Lee, great to have you with us. First,
Speaker 1: I trust all is well and healthy with you. Yes,
Speaker 1: I'm working, uh in the home office today. There you go,
Speaker 1: me too, Me too. Alright, So tell us tell us
Speaker 1: what you saw from FedEx, because you know, a lot
Speaker 1: of times people are coming out with numbers and investors
Speaker 1: are running for the hills. Not so here. Yeah, let's listen.
Speaker 1: So in the third in their third quarter, I mean
Speaker 1: they had some I gut some good news if you will. Um,
Speaker 1: they'd beat expectations, but I would caveat that and saying
Speaker 1: that expectations have been extremely low for fed X. Uh,
Speaker 1: they've kind of disappointed the streets. For um. If you
Speaker 1: look at the last twelve months, I mean, their stock
Speaker 1: is vastly underperformed the SMP the stocks down about forty
Speaker 1: percent versus the SMPS down around over the last twelve months,
Speaker 1: and that compares with the UPS, which is underperformed the SMP,
Speaker 1: but just by a hundred basis points. So, um, you know,
Speaker 1: fed X has kind of had a couple of quarters
Speaker 1: of where they've disappointed and the kind of the trends
Speaker 1: that we've been seeing to create that disappointment haven't gone away.
Speaker 1: I mean, they're seeing weaker economic demand. UM, they're seeing uh,
Speaker 1: you know, higher costs because they're expanding their ground service
Speaker 1: to six and seven days delivery. We all knew about
Speaker 1: the Amazon business that they lost on the UPS picked up. Um,
Speaker 1: they're they're talking about, you know, a mixed shift to
Speaker 1: to lower yielding UH packages which is B two C
Speaker 1: versus B two B. These are all things we know about.
Speaker 1: These are all things that are going to weigh on
Speaker 1: the company in the coming quarters. UH. And they also,
Speaker 1: you know, it's relatively you know now that the CFO
Speaker 1: is upping aside the team under the current UH president
Speaker 1: CEO Raj it's kind of needs to coll us a
Speaker 1: new management team. You know, everyone there have been in
Speaker 1: their positions for now for less than two years, so
Speaker 1: you know, they really have a lot to prove. UM
Speaker 1: and what what I would say, is that you know,
Speaker 1: on the good news for them in the coming months
Speaker 1: is while you know, COVID nineteen is definitely going to
Speaker 1: be a strain on the global economy and demand, um,
Speaker 1: you know, it does drive the need for expedited freight.
Speaker 1: So you know, if you if you need products, it
Speaker 1: gets to sell and it makes economics sense to do
Speaker 1: it uh in the air or you know one day
Speaker 1: delivery on the ground. You know you're going to use
Speaker 1: the fed X or UPS or another expedited kind of
Speaker 1: kind of methods. So that's interesting, could be good for them.
Speaker 1: The snap Act can be very good for them. And
Speaker 1: if you know, they get T and T integration right,
Speaker 1: which is the big M and A that they did
Speaker 1: a couple of years ago, which has kind of been
Speaker 1: hamstrung by a cyber attack that hit that business unit. Um,
Speaker 1: you know, they're finally you know, getting some synergies that
Speaker 1: would stay in that business. Uh. You know, in the
Speaker 1: next twelve months, hopefully that will improve. Uh. And then
Speaker 1: you know, we are seeing or hearing that you know
Speaker 1: that the Chinese economy is getting back to quote unquote
Speaker 1: a more normal uh production level. Obviously they're not a yet,
Speaker 1: but you know, anecdotally that's around seventy five. So you know,
Speaker 1: as that all as the stuff comes off the assembly line,
Speaker 1: it's got to get to the shelves because if anyone's
Speaker 1: been to a grocery store or a costco lately, you know,
Speaker 1: those shelves are pretty barren, especially when it comes to
Speaker 1: the toilet paper and hand sanitizer. All right, So a
Speaker 1: few questions. They got thirty three billion worth of debt
Speaker 1: and I'm assuming some of that is because of that acquisition.
Speaker 1: I mean, is that manageable? Is this something that we
Speaker 1: have to worry about that this is gonna be another
Speaker 1: company that's a tap a credit line or do something
Speaker 1: like do we have to be nervous about that debt
Speaker 1: load for FedEx? No, because they do have some flexibility
Speaker 1: and their tap x UM. You know, they can delay
Speaker 1: the delivery of planes if they wanted to. Uh, they
Speaker 1: can slow down some of the money that they've been
Speaker 1: spending in redesigning and upgrading um their networks to increase
Speaker 1: the amount of automation that takes place. So they do
Speaker 1: have some flexibility. Uh. And at the end of the day,
Speaker 1: they're still profitable, they're still cash so positive. Um, you know,
Speaker 1: the world would have to be really bad, uh for
Speaker 1: FedEx to have a liquidity issue at least from our standpoint. Um,
Speaker 1: but you know, we've seen two black slawns in the
Speaker 1: last two months, so who knows? All right, So what
Speaker 1: do you worry about hearing when they hop on the
Speaker 1: call with you guys Laterly, I'm really really curious about,
Speaker 1: you know, how they um kind of quantify the financial
Speaker 1: impact and COVID nineteen. You know, they're they're saying they're
Speaker 1: not giving guidance anymore. And to be frank, that's a
Speaker 1: good thing because they really gave some poor giants over
Speaker 1: the last two years. They were adjusting it up or down.
Speaker 1: So it's kind of a good thing that they're kind
Speaker 1: of stepping away from that. But like just to get
Speaker 1: them because I mean, their margins were just not good.
Speaker 1: I mean their margins were two percent from a consolidated standpoint,
Speaker 1: that's down over three hundred basis points. And you saw
Speaker 1: that across the board. Their express business was down significantly.
Speaker 1: The margins were only one point five percent, uh, and
Speaker 1: then their ground margins, you know, we're almost down by
Speaker 1: U they were down to about six point one percent
Speaker 1: the one and when we're talking about margins. The one
Speaker 1: group part of their business was set X Freight, which
Speaker 1: is there left in truckload business. You know, a lot
Speaker 1: of people don't realize that though they're the biggest lesson
Speaker 1: truckload provider, and those margins went up on spaces point
Speaker 1: from the quarter. Alright, Lee, we really appreciate your instant
Speaker 1: a context leak Classgow follows FedEx for Bloomberg Intelligence, joining
Speaker 1: us on the phone from home.