In this segment from the Motley Fool Money radio show, host Chris Hill, Million Dollar Portfolio's Jason Moser, Total Income's Ron Gross, and Motley Fool Pro and Options' Jeff Fischer dig into the second-quarter results from the package shipping giant, which included a remarkable $15 billion in revenue. The company laid out $4.8 billion of European-focused TNT Express last year, but that subsidiary was the victim of a serious ransomware attack this summer, which has impaired it noticeably. But investors are not as focused on the short term with FedEx (NYSE:FDX).
A full transcript follows the video.
This video was recorded on Sept. 22, 2017.
Chris Hill: We begin with one of the bellwethers of the U.S. economy. FedEx shares hit a new all-time high this week after first-quarter revenue came in north of $15 billion. Jeff Fischer, you looked at the results. What stood out to you?
Jeff Fischer: So Chris, FedEx is up despite having a really tough year. They acquired TNT Express last year for $4 [billion] to $5 billion, a lot of money, and then were soon hit by a massive hacking scandal, you could say, that really affected business.
Ron Gross: I would rather say "fiasco."
Fischer: Fiasco, scandal, criminal activity is what we should call it. It is. That hit results across the board. What's happening, though, is, investors are looking past that, and they're believing management when they say that their goal of increasing margins and operating income by $1.2 [billion] to $1.5 billion by 2020, that they're going to hit those numbers anyway. So the stock is up 18% this year. What stood out is they're executing on their plan to become more efficient and deliver to more of the world despite this hack that they're working through.
Hill: Jason, just like we've talked about with companies like Apple, where Apple is all about the iPhone, but you look at their services segment and the growth there. The freight segment at FedEx is not their biggest segment, but in terms of growth, they're kind of crushing it.
Jason Moser: Yeah, big opportunity there for sure, especially as we go into more of a logistics-driven world. It's about getting things from Point A to Point B as quickly and efficiently as possible. On the one hand, FedEx and its ilk, like UPS, they have owned this space for a long time, and they've done really well. There's more competition coming in from companies like Amazon, who are looking to own more of that last-mile experience.
I think it's really interesting with a company like FedEx. They're going to raise prices. And really, they can get away with doing that. It's very difficult to combat that, because the service they provide is so necessary, and they have such a big infrastructure already established, and such a great network there. It's just a phenomenal business when you look at the nuts and bolts of it. A lot of pricing power there, and you have to like that from the investor's perspective.
Fischer: It's true, Jason. Especially right now, where they say that what's happening out there is reflecting solid consumer spending. The economy is healthy in the U.S. We're seeing a rebound in industrial activity in the U.S. as well. And internationally, capital spending is supporting higher GDP growth across the board. So FedEx is a great company to follow just to see how the economy in general is doing. They're doing well. What's amazing still is, they're working to restore their customer volumes still from that malware attack. And the whole first quarter of the conference call was all about the cyberattack.
Hill: So just to be clear, even with all of these challenges and all of these bumps in the road, no pun intended, the stock is still hitting an all-time high. Imagine if they didn't have these issues.
Fischer: True. And it's been a market outperformer since it came public in the '70s. And the past five years, and the past 10 years, it's consistent outperformance.
Moser: What'll be a really true test is when we see fuel price is really go up meaningfully. We're still in the phase of very low fuel prices. And while that's a challenge, they deal with it, it's just part of the business. We haven't seen them have to deal with it for a while. So when that does happen, it's going to be very interesting to see how the market treats the stock.
Chris Hill owns shares of Amazon. Jason Moser owns shares of Apple. Jeff Fischer owns shares of Amazon and Apple. Ron Gross owns shares of Amazon and Apple. The Motley Fool owns shares of and recommends Amazon and Apple. The Motley Fool recommends FedEx. The Motley Fool has a disclosure policy.