When it comes to Wall Street and earnings reports, one near-constant is that what is going to happen is more important than what has happened. Last quarter's numbers were good? That's nice -- but what's the growth plan from here? 

In that theme, logistics powerhouse FedEx (NYSE:FDX) reported on its fiscal third quarter Wednesday, and the numbers were not what analysts or shareholders were hoping for. But it's the tepid outlook -- and the reasons for it -- that investors need to understand. Elsewhere, General Mills (NYSE:GIS) beat profit expectations for its fiscal third quarter and raised guidance, which is in fairly sharp contrast to how the packaged food industry has been performing in recent years.

In this MarketFoolery podcast, host Chris Hill and Motley Fool Asset Management's Bill Barker reflect on the external and internal forces steering both companies, and consider the investment theses for each. They also discuss the Thursday IPO of denim dynasty Levi's, and whether the company's history and outlook make it an attractive addition to a well-accoutered portfolio.

A full transcript follows the video.

This video was recorded on March 20, 2019.

Chris Hill: It's Wednesday, March 20th. Welcome to MarketFoolery! I'm Chris Hill. Joining me in studio today, from MFAM Funds, Bill Barker. Thanks for being here!

Bill Barker: Thanks for having me!

Hill: We've got some surprising news from General Mills. We've got a hot IPO coming up. We've got to start with FedEx, though. We've got to start with the bellwether. FedEx reported after the market closed yesterday. Third-quarter profit and revenue came in lower than expected. They lowered guidance for the full year. By the way, that is the second time they've done that for 2019. Not surprisingly, shares of FedEx down 5% this morning. 

Barker: Yeah, following on many other declines over the last half year or so. Down about 30% from its highs. As the story goes, the global market is showing signs of slowing, and FedEx very much is in the crosshairs of that. Additionally, the stock has been hurt by increased rumors and actions that Amazon is getting into the logistics and delivery space. There's not a lot of positive sentiment to start with, and the numbers today and the numbers predicted for tomorrow, there's nothing going the right way at the moment. 

Hill: Nothing big is going their way at the moment, but Fred Smith, the CEO, talked about how some of the investments that they've been making are starting to pay off a little bit, particularly in Europe. They're also transparent about the fact that they're going to continue to make investments. I think that makes sense. I don't own shares of FedEx, but I look at this business which, over the long term, has been a great business to be a shareholder of, and I look at the stock -- it's down 30% from its high, which is about what it's done over the past year, basically down about 25%, 30%. I look at this, and the question to me is, is the worst of this over? If the investments that they've been making are starting to pay off, is this actually a good time to buy shares of FedEx? It'd be one thing if it was like, "Oh, it's down today because the valuation is sky-high and it's had this amazing run." No, it's had an amazing run over the long term, but over the last year, it's been knocked around.

Barker: It has been knocked around. The price is interesting, at about 10 to 11 times next year's projected earnings. Let's focus on that important word, "projected." Where is the future for this business? Is it something that you can assume is going to keep growing better than the pace of the global economy, or not? In terms of its acquisitions -- one of the things that is pointed to in the guidance, the outlook for next year, is that the company is predicting $15 to $16 a share in earnings...as long as you don't look at a long list of stuff. So that's adjusted earnings. Included is the integration expenses of TNT Express, which is a Dutch-based logistics and delivery company which FedEx acquired a couple of years ago and for which it's still paying integration costs. So, when Smith says these things are beginning to pay off, it depends, of course, on how you're measuring it. As long as you ignore the integration costs as a one-time thing, then yes, the revenues are higher. But it's left to those doing a little bit more work whether that was actually a great acquisition. 

Hill: So, they buy TNT, it was over a year ago. They're still paying the integration costs. Did Fred Smith talk at all about how much longer he expects that to go on? I mean, great CEO, great track record. I'm willing to give Fred Smith the benefit of the doubt. He's right that technically, it's a one-time cost. But if it's a one time-cost that they have to pay off for the next five years, then yeah, that swings the pendulum toward "this was a bad acquisition."

Barker: The guidance for fiscal year 2019 is that $15- to $16-a-share range, excluding a bunch of things, including TNT Express. On a more GAAP basis, but still excluding some things, it's more in the $12- to $13-a-share range. You'd want to get all those costs out of the way in fiscal '19 and say it was a one-time thing, rather than have this be ongoing. Whenever you take the costs, they're real. That's the point that companies want you to ignore. If you just pay attention to the adjusted earnings that we're going to present to you, you will see by squinting your eyes and tilting your head and looking at it in that way how good it is, rather than with your eyes wide open. 

Hill: [laughs] So, to go back to the question that I asked earlier, is the worst of it over? Hearing what you just said, my conclusion is no, the worst of it is not over. FedEx would not be the first company to have a situation where they're dealing with costs and they're trying to get them out of the way, or essentially trying to contain them, within a single fiscal year. So, yeah, they're probably going to look to, in the next three months, get as many of these TNT integration costs taken care of.

Barker: Is the worst over, I guess one question that I would start with is, tell me what's going to happen with Brexit. As long as you can answer that, then I can help get you to a better understanding of whether the worst is over. Given that neither one of us really knows what's going to happen next with Brexit -- which puts us in the large group of people which is defined by everybody...you don't become a global player and get all the benefits of acting on a global scale without suffering some of the consequences when parts of the world are underperforming. In terms of what FedEx is putting out right now, it's pointing more toward Europe and Asia as part of that. So, yeah, Europe has slowed down. A lot of companies are pointing that out today. UPS is another one making that claim. The last quarter, you had some bigger weather events than usual. There are always some in the winter, but I think this last quarter was particularly bad. You had the government shutdown. You've got the doubts about Brexit. It's all a bit of a challenge at the moment. So I don't know that it's going to have a quarter as challenging as the last one. That said, the U.S. economy was still growing pretty well over the last quarter. 

Hill: Let's move on to General Mills. It was on this day in 1964 that General Mills introduced Lucky Charms cereal, so maybe appropriate that they're reporting today. Shares of General Mills up about 4% this morning after third-quarter profits came in higher than expected. They also raised guidance for the full fiscal year. Look, I mentioned the cereal. Chances are, many people listening -- and by many, I mean the dozens who are listening -- have something that General Mills sells in their kitchen cabinets right now, when you think of all of the brands that they have across breakfast, lunch, dinner. Haagen Dazs, Progresso soup, Yoplait yogurt, Pillsbury, Betty Crocker. Of course, the big acquisition they had of Blue Buffalo pet food. A lot of brands that people are familiar with. Speaking of stocks that have been knocked around, the recent past has been pretty good for General Mills.

Barker: In reference to the brands, I went to their page to remind myself, because there are so many of them, what there is in General Mills. I have to say, they start off with one of the most modest claims that I've ever seen for their brands. At the top of the page, this is their claim: "We know when we're at our best, people love our products." Many would just go with, "People love our products."

Hill: [laughs] Right.

Barker: [laughs] It's like, what about when you're not at your best?

Hill: Well, then people don't love them.

Barker: [laughs] You ever get a particularly weak box of Lucky Charms or something? Like, "Ugh, not at their best on this one."

Hill: Yeah, exactly. That actually makes me like General Mills more. We're going to talk about how companies message themselves in a moment. We'll get into this a little bit more with the impending IPO.

Barker: Did you have an actual question that I didn't answer there?

Hill: When you look at this business and consider the industry that they're in -- 2018, packaged foods, if it wasn't at the top of the list of the industries that you did not want to be invested in, it was certainly in the top three. As we talked about with FedEx, is the worst over? I'm wondering if General Mills is operating on such a level that it's like, actually, yeah, this is a pretty good stock to own for the near term, because whatever the stock has done in the past, this has always been a stable business. There are various points of time where you'd want to own shares, certainly stretches of time where it's like, "No, this is not something I'm interested in." I don't want to apply what's happening with General Mills to the entire package foods industry. Are they operating at a higher level than the competition they're dealing with?

Barker: What they're doing mostly is going with the playbook of the number of others at varying speeds, and that is, you've got your highly processed carbohydrate type of cereals being one, many other products that they've got, snacks and pizza.

Hill: Annie's, they also have Annie's organics.

Barker: Yeah. So, they've moved in their acquisitions toward the organic, the healthier stuff, and pets. That's where the growing part of the packaged food business is. In the case of Blue Buffalo, both, the combination of both organic and pets. Blue Buffalo is a higher-quality pet food. I don't know, it's got natural ingredients or something like that. I don't know. My dog doesn't seem to notice the difference. He's incredible, actually. The toughest part of the day is feeding him in the morning because he's very excited about any food there is, whether it's organic or not. It doesn't need to be Blue Buffalo, it can be Lucky Charms and he's pretty excited about that, too. I digress. 

So, in terms of growth, you've got a low ceiling and a high floor. People don't change their food consumption patterns that quickly. And, across generations. You're buying cereals that your mom bought for you, I'm sure.

Hill: Not Lucky Charms, per say.

Barker: You weren't allowed to have Lucky Charms. You weren't allowed to have sugary cereals, is what I remember.

Hill: It was rare. It was a rare commodity in my house.

Barker: Christmas?

Hill: Basically, yeah.

Barker: Anyway, they're taking all of the stable cash flows from those sorts of things. And rather than building and doubling down on what they're best known for, if cereals is what they're best known, it's going more toward the organic, natural, and pet stuff, which is the growing part of the packaged goods market.

Hill: Cheerios is on that list. I definitely had Cheerios in the house.

Barker: Wheaties?

Hill: Wheaties. I mean, come on, that's the stuff champions are made out of. That and little chocolate donuts.

You pointed out somebody this morning, a new partnership that Blue Buffalo has entered into. It's with something called DockDogs. I'm just going to read from the announcement on the Blue Buffalo website. "Blue Buffalo, America's leading natural pet food company, has become the official sponsor of DockDogs, the premiere competitive dock-jumping performance sport for dogs of any shape, size, or breed." Safe to say that neither one of us -- I'd never heard of this sport. Have you ever heard of this sport? 

Barker: Well, I've thrown a tennis ball off the dock for my dog to run and jump after. But I'm not a professional. I'm really more of an amateur, my dog and I.

Hill: [laughs] Are you thinking about taking your dog pro? By the way, I know we're a ways out from the summer, but to anyone at ESPN who's thinking about, "Yeah, we're going to do the Ocho again, we're going to take ESPN2 and for 24 hours on August 8th, we're going to program obscure sports," not only should the sport that you excel in, court tennis, be on that list, but yeah, let's get some competitive dock-jumping going on with the dogs.

Barker: I don't excel in any sports at the moment.

Hill: Well, yeah, you're on the rehab.

Barker: I'm on the rehab. Could I have gone pro? My parents' dog Max could have gone pro easily. Easily, he would have dominated that competition. Not just national, but I think global scale. He was incredible!

Hill: We're going to put the dozens of listeners on the honor system here. Drop us an email, marketfoolery@fool.com, or tweet at us, @MarketFoolery, if before listening to this episode, you've ever heard of competitive dock-jumping. 

Barker: Did you ever watch Great Outdoor Games? Speaking of the Ocho, this was not on the Ocho, this was ESPN2, maybe even on ESPN. Great Outdoor Games.

Hill: The name is vaguely familiar, but I couldn't tell you what one of the sports was.

Barker: It was some lumberjack competitions, that sort of thing. But also dog jumping docks for length. 

Hill: That was part of the Great Outdoor Games?

Barker: Oh, yeah.

Hill: That sounds like in the NFL, when college athletes have the combine to test how tall are they, how much they weigh, what's their speed, that sort of thing? That sounds like a combine for dogs. 

Barker: I guess. Yeah. Well, the dock game seems to have more competitions, including aerial, height jumping and stuff like that. Also I think agility course stuff. Competitive dog vs. dog, which I think is the most exciting feature that they've brought in. Which dog can get to the thing that is being retrieved faster than the other one?

Hill: That's certainly more interesting to watch than --

Barker: Than racing against the clock.

Hill: Or the Westminster Dog Show, [laughs] I was going to say. Let's move on -- 

Barker: You're going to make a lot of enemies, taking shots at the Westminster Dog Show.

Hill: I think the average person would rather watch competitive dock-jumping than the Westminster Dog Show. I could be wrong. We'll find out on August 8th, when the Ocho happens. 

​Barker:​ Ask Christopher Guest.

Hill: That's true. Best in Show, strong movie. Very strong movie.

Levi's is going public. The well-known jeans brand, which was public once upon a time, taken private in 1985. Levi's is pricing the stock at a range of $14 to $16 a share. In doing so, assuming they hit the midpoint of that range, they're going to raise just north of $500 million. Speaking of challenged industries, we'll go ahead and put apparel on that list as well. This is a well-known brand. This is, I think, a company that has some brand equity and has some things going for it. But it's in a tough space. All things being equal, I'm wondering if Levi's is an IPO that you're interested in, or you're just going to put on the back burner and see how the first couple of quarters go?

Barker: Definitely on the back burner. When Levi Strauss, one of the founders of the company, died, I think his estate was worth -- this is the early 1900s -- around $3.5 billion by today's measurement, inflation adjusted. Did very well for himself. Left the money to his nephews. He didn't have children of his own. The company now, worth about $5 billion. I'd like to see a lot more of the math, but I don't feel that the compounding, keeping up and more than beating inflation...look, his estate is not the same thing as the company. The company's done different things over the years. People have taken money out and spent it. The family is -- one of the reasons why they're bringing the company public is, the controlling interest is still the descendants of Levi Strauss. They will in part cash out through this IPO, but will also retain majority ownership. You've still got the family controlling the brand. Some people like that founder-run...it's not really founder-run at this point. I'd want to see the actual numbers here. 

Hill: In looking through the prospectus, here's one of the things that I'm just going to go ahead and call a red flag. The company states in their perspectives that their brand, and I'm quoting here, "epitomizes classic, authentic American style and effortless cool." That phrase, "effortless cool," shows up four times in the prospectus. I'm just going to gently suggest to the people doing communications at Levi's that if you're putting that much effort into telling people that you have effortless cool, you don't, actually. Just put aside that as a selling point and focus on the business.

Barker: They also have Dockers.

Hill: [laughs] Yes.

Barker: [laughs] That was sort of what Dockers was always going after, wasn't it? I don't know if "cool" would be the first word that would come to mind, but, the old Dockers commercials, which inspired one of the better Saturday Night Live commercials, which is something we sometimes come back to, Bad Idea Jeans. Remember that one?

Hill: Yes. 

Barker: Classic.

Hill: Classic commercial. An all-time great commercial from Saturday Night Live.

Barker: Inspired by the Dockers commercials of that era, which involved this waist-down portrayal of, I don't know what the guys in those commercials were doing --

Hill: Just sitting around, talking.

Barker: Sitting around, being effortless.

Hill: Yes!

Barker: And if we got the full view of them, perhaps we would say, "Oh, those guys seem pretty cool." That was what the ads were going after. [laughs] 

Hill: [laughs] Good luck to Levi's! We'll just end on that -- actually, we're going to end on this note. Your alma mater, Yale University, playing on Thursday in the NCAA Basketball Tournament. They're playing LSU. They're a 7-point underdog. How you liking your chances? I will point out that LSU, while they are favored, they are without their head coach, who's been...let's just say he's taking a little time away from the team.

Barker: As is one of the Yale coaches in a different sport. I'm glad that Yale is getting into the news today on better headlines than last week.

Hill: You like your chances?

Barker: I'll take Yale with the points. 

Hill: Absolutely.

Barker: Why not? I get the 7 points. 

Hill: Yes, absolutely, if you're in Vegas. [laughs] They're not going to start the game with the score 7-0. The team doesn't get the seven points. But if you're betting, you get the seven points. Good luck!

Barker: Thank you!

Hill: Thanks for being here!

Barker: Thank you!

Hill: You can read more from Bill Barker and his colleagues by going to mfamfunds.com. Sign up for Declarations, it's the free monthly newsletter. It's free, people. It's free and it only comes once a month, so it's not going to bug you. Check it out!

As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of MarketFoolery. The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening! We'll see you tomorrow!

Check out the latest earnings call transcripts for FedEx and General Mills.