Shipping and logistics companies like FedEx (NYSE:FDX) are bellwethers for the U.S. economy, so the mixed results it delivered Wednesday may not please investors. Even less likely to make them happy was the company's explanation for its tepid guidance: President Trump's trade wars and the economic slowdowns they are precipitating are expected to reduce demand.
In this segment of the Market Foolery podcast, host Mac Greer and senior analyst Ron Gross talk about what's driving FedEx's higher costs and lower revenues and the complicated competitive landscape, but also consider the more upbeat parts of its story, such as its recent deal with Dollar General. And most vital for investors, they weigh the company's longer-term stock price performance and the current investment thesis.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.
This video was recorded on June 26, 2019.
Mac Greer: Let's move on to FedEx. The stock not doing much on earnings. CEO Fred Smith said trade disputes and an economic slowdown have created quote "significant uncertainty" for FedEx Express. Ron, FedEx also facing stiff competition from UPS and Amazon as well. What do you think of FedEx's earnings?
Ron Gross: The earnings are OK. It's the forward guidance about U.S.-China trade tensions. They forecast a mid-single-digit percentage point decline in adjusted earnings for fiscal 2020. Investors don't like to see that, that I can tell you. As far as this quarter, adjusted revenue up 2.8%. Operating income down 7%, though. Negatively affected by lower package and freight revenues at FedEx Express, higher costs at FedEx Ground. Costs associated with their U.S.-based voluntary employee buyout. They are voluntarily retiring lots of employees there to cut costs.
There was some strength, though. U.S. volume growth was up. Increased revenue per shipment at FedEx Freight and FedEx Ground. Some favorable incentive compensation expense declines. There were some offsetting positives. But overall, you don't want to see a company like FedEx have an operating income decline.
Greer: Let's talk about the competition. When you look at FedEx, when you look at the stock, shares have lost to the market over the last year, and they've lost in the market over the last five years. But they're still beating UPS. If you want to feel better, if you're FedEx, hang out with UPS. But it seems like, increasingly, you've got traditional competitors like UPS, but you also have the Amazons, the Ubers. You have anyone with a car who may essentially contract their time and their services out to a bigger company to deliver. How does FedEx compete with that?
Gross: Well, you're seeing that it's tough, and you're seeing that in the stock price. They're doing things like making it more convenient for folks to drop off and pick up packages. A perfect example would be, they just said they're going to create drop off and pick up sites at Dollar General, 8,000 stores. What that does, it puts 90% of the U.S. population close to a FedEx footprint of some kind. They're trying to make as convenient as possible. They severed ties with Amazon for their Express delivery service. They're making strategic moves, and sometimes difficult moves, because, as you say, it's a very competitive landscape out there.