Analysis – FedEx investors frustrated with new CEO after pulling expectations

Analysis – FedEx investors frustrated with new CEO after pulling expectations

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Written by Lisa Bertlin

LOS ANGELES (Reuters) – FedEx Corp. (NYSE) has undermined investor confidence in the new CEO’s vision for a long-awaited turnaround in the shipping company, sending its shares tumbling after it last week withdrew its full-year earnings forecast. .

After Raj Subramaniam succeeded founder Fred Smith in June as FedEx CEO, the Tennessee company earned a reputation by issuing stronger-than-expected full-year earnings forecasts and boosting its dividend payments.

Investors, already frustrated with last year’s over-optimistic estimate of the holiday shopping season, were disappointed by its earnings warning on Sept. By the end of trading that week, FedEx’s stock price was down more than 28% than it was in Subramaniam. My first day as CEO as investors questioned FedEx’s predictability.

“You can’t say things are good, give directions, raise dividends and then blow shareholders into small business owners,” 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 ending August 31 in a conference call after the market closes on Thursday.

Reuters spoke with Bradshaw and five other investors who bought FedEx stock when it looked cheap against its more profitable, better-performing competitor. United Parcel Service (NYSE:), in the belief that renewing FedEx’s business promises healthy returns. The realization of this vision now appears to be farther than they had hoped.

Most of those investors, including the one who sold most of his holdings in January, still believe FedEx can eventually make higher profits by shedding assets, cutting costs, and combining the independently-operated Express and Ground businesses.

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But patience is wearing thin, especially after UPS executives stood by their expectations this month.

Asked if last week’s warning shook his confidence in the new FedEx CEO, Bradshaw said, “100%. I wish I had more UPS and forgot FedEx.” Bradshaw said the company owns approximately 15,000 shares across the accounts.

“Too bad, it’s good”

Investors agree that business conditions are deteriorating due to weak e-commerce demand, rising inflation, and sporadic COVID lockdowns in China. But most people thought FedEx’s struggles were mostly subjective, noting that it failed to ground planes, close corporate offices and reduce non-essential business hours fast enough to offset the downturn.

Said David Katz, chief investment officer at Matrix Asset Advisors in White Plains, New York, which has about 58,000 FedEx participating.

Katz remains confident in FedEx for the long-term, but he and other investors would like to hear executives Thursday in detail about what went wrong and how they will work to make things right.

Analysts and investors focused on the deterioration at FedEx Express, as a dwindling e-commerce bubble dampened demand for lucrative air shipments to the United States from Asia, a company in which the company has a larger footprint than UPS.

When FedEx said last week that Express revenue in the first quarter of the year would fall by $500 million, German Bank (ETR): Analyst Amit Mehrotra estimated that this resulted in a similar drop in profits. In a research note, he said the individual decline meant a “worrying inability” to manage expenses.

The bright side was that the news illustrated FedEx’s challenges. “It’s too bad, it’s good,” Mehrotra said in terms of explaining that a more dramatic reform was needed.

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FedEx also said last week that it has struggled with express service challenges in Europe, as TNT’s costly and troublesome integration extends into its seventh year since the deal was struck in 2016.

FedEx has warned that business conditions will worsen in the current quarter, which ends with the start of the main Christmas parcel delivery season. Warnings from FedEx and others in the global shipping market have cast a shadow over the year-end holiday shopping season.

FedEx said first-quarter revenue from the US ground delivery business would miss the company’s $300 million targets. Last year, the company overestimated growth for the 2021 Christmas season, hurting relationships with independent delivery contractors and leaving investors wondering if FedEx could effectively model the order.

Late last month, FedEx told Reuters it was confident in its forecast for this year’s “stress-tested” holiday.

Trip Miller, managing director of Memphis-based hedge fund Golan Capital Partners, said he didn’t blame FedEx for its mistakes, but cornered profits by selling more than 90% of its shares in January, seeing warnings of plunging demand.

“They don’t turn this ship fast,” he said.

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