Yahoo Finance's Brian Sozzi reports on FedEx's earnings report that cites its cost savings outlook for 2023.
Video Transcript
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SEANA SMITH: FedEx trading to the upside here, was up just over 4%. Paring some of those earlier gains, now up just about 3% after releasing its first quarter earnings report. Yahoo Finance's Brian Sozzi is here. Brian, I know you are closely tracking FedEx, especially since we got those prelim results last week. What do you make of the cost-cutting announcement-- because that seems to be the big headline here-- and the reason why shares are moving to the upside?
BRIAN SOZZI: Seana, there's a party here at Salesforce's Dreamforce event but no party for FedEx shareholders. I was on the Yahoo Finance app. I'm surprised to see the shares up close to 3% on this result that came as a preannouncement. Wasn't this report supposed to come after the bell?
Nonetheless, I made a couple of notes here. First, you have a management team now committing to a $1 and 1/2 billion in stock buybacks right into the teeth of a recession. And this fits with everything that we slammed the company with last week when they come out here and whiffed on earnings, guidance, withdrew their full-year guidance.
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What is going on at this company? And along those lines, also, not coming out here and taking down their fiscal 2025 long-term growth targets-- Jared highlighted that-- still a company looking for double-digit earnings per share growth at a time where they're going to cut billions in dollars of costs that will very likely have an impact on the morale inside of FedEx, which means that will impact their top line even more.
And then, oh, yeah, all this is coming inside of a time where interest rates are likely to go much higher-- as we learned from the Federal Reserve this week-- and likely to impact not just US demand, not just US package volume for FedEx, but also everything they're doing overseas. I think the vibe on FedEx on Wall Street remains this-- they have reset expectations on Wall Street with this disastrous two weeks of news, guidance, you name it, actual performance.
I'm looking at FedEx Express operating profits down 69% on the most recent quarter. That's absolutely awful. Bottom line is FedEx is going to need a couple of quarters when they come out here, smash earnings estimates by $0.10 to $0.20, and regain the confidence of investors. And Seana, Dave, and Rachelle, that is a tall order to do when you're having an economy that might not even be growing later this year and then, ultimately, into the first quarter of 2023.
DAVID BRIGGS: Yeah, in particular, Sozzi, an economy that Raj Subramanian just told us about the other day. The stock is up about 3% but only to where it opened on Wednesday before getting hammered. Do we get a better answer to the question today, Sozz, whether it's more of a FedEx problem or more of a global economy problem that they're dealing with?
BRIAN SOZZI: This is just a whole host of problems, Dave. You can pick your poison. I've seen some analysts on the Street highlight market share loss to Amazon. Amazon is a company investing aggressively in its logistics operations and might be taking market share from FedEx. It's a UPS thing. UPS under new CEO Carol Tome is doing well.
Now, are they impacted by the slowing economy? Yeah, sure, probably, but not by the same extent, probably, as FedEx because they are being run better than what is happening over at FedEx. Bottom line is this-- you had FedEx, a couple of months ago at Investor Day, hype a lot of growth, come out here very aggressively.
And I think a lot of the well-paid people inside of that management team forgot that the economy is slowing down, we have high levels of inflation, and it is unlikely that you're going to come out here and hit the high end of your growth targets in this type of environment. Bad job by them. They're in the penalty box. They need a couple of good quarters.
RACHELLE AKUFFO: And, Brian, of course, you mentioned some of the carriers, but you also have companies like Amazon who have their own logistics that they're dealing with that's also taking market share away. Do you think FedEx has done enough with these cost-cutting measures to really re-instill some of the confidence in the management team?
BRIAN SOZZI: No. And that's why I'm saying, Rachelle, it's going to take a couple quarters for FedEx to come out here and regain the investor confidence on Wall Street. You know, I wrote this in the Morning Brief newsletter last week. It could take up to a year for investors to, I think, just get comfortable again with the fact that this is a FedEx executing strongly on the top line that, oh, yeah, they're also delivering on these billions of dollars in cost cuts that they have now dumped on Wall Street.
I know Wall Street loves to hear these large numbers. They love to see FedEx coming out here and cutting close to $2.2 to $2.7 billion in costs. It's an absolutely amazing press release. I get it. But now they have to deliver on these things. And what does delivering look like here, Yahoo Finance team?
It might mean lower morale inside of FedEx. It might mean as they cut back, as they ground planes, as they shut sorting facilities, it might mean more market share loss to an Amazon, more market share loss to UPS. And we could very easily be sitting here six months from now and it's another earnings warning from a company like FedEx and then maybe no more guidance for FedEx for the next two years.
DAVID BRIGGS: Some really tight times ahead. Ahead for Brian Sozzi, he'll sit down with Marc Benioff, co-founder, co-CEO of Salesforce. We'll see you in a bit, Sozz. Thank you.