No – FedEx problems do not indicate a recession (or a bear market)

It may be new to the job, but FedEx
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CEO Raj Subramaniam should know better. With sales for the second quarter of 2022 up 5.5% compared to the same quarter of 2021, the decline in gross earnings (-15%) and earnings per share (-18.6%) means there is a serious problem for the company — not the excuse for the global recession he made. Jim Kramer on CNBC.

Below are the CEO’s comments contained in Company press release:

Raj Subramaniam, FedEx said: “Global volumes declined as macroeconomic trends deteriorated significantly later in the quarter, both internationally and in the US. We are quickly dealing with these headwinds, but given the speed with which conditions are changing, the First-quarter results are below our expectations. Foundation President and CEO. “While this performance is disappointing, we are aggressively accelerating cost-cutting efforts and evaluating additional measures to enhance productivity, reduce variable costs, and implement structural cost-reduction initiatives. These efforts are in line with the strategy we outlined in June, and I remain confident of meeting our financial goals. for fiscal year 2025″.

Sure enough, the market gave a no-confidence vote, sending FedEx down more than 20%. This brought its diminishing market value to $41 billion, 73% below UPS’s $152 billion.

Perhaps Wall Street would have accepted the excuse of a global recession had it not been for FedEx’s extended underperformance. And the problems are not just Covid disease or inflation. It even stretches back to the 2019 growth period. Here’s a comparison of FedEx stock’s performance near 0% with UPS and the S&P 500 over the past years (all results include dividends).

Key takeaway: FedEx is neither a recession nor an indicator of a bear market

The company needed (and needed) reform, and now it has to deal with rising costs (inflation), expanding competition (such as improvements to the US Postal Service and Amazon).
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delivery services) and a capital market that is increasingly differentiated with regard to risk and poor sales/profits. (This means that those very distant “2025 financial goals” carry little weight. In fact, they imply a management loss that increases risk even more.)

Then there are two points in the press release:

• Projected capital spending for fiscal year 2023 has been revised to $6.3 billion, compared to a previous forecast of $6.8 billion. [Meaning a cut of $0.5B]
• “The Company reaffirms its previously announced plan to buy back $1.5 billion of FedEx common stock in fiscal year 2023.”

So, in this challenging time, both strategically and competitively, are you going to reduce capital expenditure (company improvements) and reduce equity capital? of course not.

Therefore, do not view FedEx results, comments, and action plans as indicating an upcoming global recession or stock market downturn. Instead, the trials and tribulations of the former pioneer have piqued the interest of business schools with an upcoming FedEx case study of management failure.

Conclusion: Media reports continue to be misleading in this developing bull market

The lack of media understanding combined with the pursuit of anything negative showed itself last week. The multiple interpretations of new information and market developments were oversimplified, handpicked, and woe to us fodder for scary and bearish stories.

The good news is that Wall Street professionals are not impressed. They continue to differentiate the firm's strong stock from the mid-cap and distressed ones. More importantly, given the changing and challenging conditions, this means that this upcoming bull market is likely to be more selective rather than a bullish tide lifting all boats. Therefore, we can expect actively managed funds to outperform passive index funds - possibly significantly.