Wednesday, December 25, 2019

Warren Buffett or Walmart should spend billions to buy FedEx: top strategists



Warren Buffett or Walmart should spend billions to buy FedEx: top strategists



It’s time for FedEx (FDX) founder and CEO Fred Smith, 75, to broker a deal for his struggling logistics baby as his final act in one major American success story.
The most ideal homes for FedEx you ask? Try Warren Buffett’s industrial-focused Berkshire Hathaway (BRK-ABRK-B) or the world’s largest retailer Walmart (WMT), according to two top strategists.
“I believe Warren Buffett will acquire Federal Express [in 2020],” said Seabreeze Partners Capital Management’s Doug Kass, who is a long-time Buffett watcher, on Yahoo Finance’s The First Trade. That certainly makes a great deal of sense for several reasons.
For starters, FedEx is a business Buffett could easily understand (always important for Buffett in an acquisition). FedEx would give Buffett even more scale in the transport space, where he already enjoys a stronghold in rails with Burlington Northern.
The logistics company has a wide moat around its business with a fleet of transport vehicles and distribution centers globally.
And above all else, these ingredients to FedEx’s business could probably be had by Buffett on the cheap (Buffett loves this, too).
Due to FedEx’s troubles the last two years in adapting to the shift to digital commerce, the stock has plunged 40%. FedEx stock trades at a 30% discount to the broader transport sector on a price-to-earnings multiple basis, according to Bloomberg data. The stock currently only trades on par with its historical P/E multiple of 12.5 times despite its compelling business model and investments it has made to speed up service in recent years.
The further icing on the cake here: Buffett is sitting on $130 billion in cash (and growing) that he has said repeatedly he wants to put to use on an “elephant”-sized acquisition. The problem has been finding a target at a great price — FedEx fits that bill.
But if Buffett isn’t keen on FedEx, Walmart should consider stepping up.
“A Walmart/FedEx acquisition makes just as much sense,” thinks Michael Lee Strategy chief strategist Michael Lee.


A FedEx delivery truck is loaded by an employee on the street, Tuesday, June 25, 2019, in downtown Cincinnati. FedEx Corp. (FDX) on Tuesday reported a fiscal fourth-quarter loss of $1.97 billion, after reporting a profit in the same period a year earlier. (AP Photo/John Minchillo)
A FedEx delivery truck is loaded by an employee on the street, Tuesday, June 25, 2019, in downtown Cincinnati. FedEx Corp. (FDX) on Tuesday reported a fiscal fourth-quarter loss of $1.97 billion, after reporting a profit in the same period a year earlier. (AP Photo/John Minchillo)

Lee is onto something with that call, too.
The world’s largest retailer is no slouch to operating a complex transport network, so FedEx could likely be successfully integrated. Further, FedEx would give Walmart a massively widened lead versus Amazon to compete for same-day delivery for goods and services.
Ultimately, the decision on whether to sell FedEx will be heavily influenced by Smith. He holds an outsized presence at FedEx for obvious reasons. Smith also owns about 7.5% of FedEx’s outstanding shares.
Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi

Sunday, December 22, 2019


FedEx takes a beating while Amazon gets vengeance

FedEx had a rough week.
On Sunday, Amazon announced third-party sellers could not use FedEx's Ground and Home shipping for Prime services. The logistic company's stock took a hit on the news.
The move comes after FedEx ditched Amazon twice this year. First, in June when FedEx Express cut its US business with Amazon, and then in August when FedEx Ground followed suit.
To make matters worse for FedEx, the company reported disappointing earnings on Thursday which were described in a note by Deutsche Bank's Amit Mehrotra as "breathtakingly bad." The numbers were so bad in fact, that by Friday morning some $3.5 billion of the company's market value had been wiped out.
Amazon dropping FedEx right before Christmas and right before the company's earnings was brilliant timing, experts told Business Insider's Rachel Premack.
"FedEx broke up with Amazon and Amazon is now giving them a stick in the eye," Sterling said.

Wednesday, December 18, 2019

FedEx CFO: 'We are here at the bottom, but we can see a way out'


FedEx CFO: 'We are here at the bottom, but we can see a way out'

By 
Associate Editor, Memphis Business Journal
“Disappointing,” “not pleased” — those were just a few of the words FedEx’s top leaders used to describe its second quarter 2020 results.
The Memphis-based shipping and logistics giant reported its Q2 2020 results Tuesday, Dec. 17, and — as expected — it was another quarter of grim results.
The adjusted non-GAAP net income for the quarter was $660 million in Q2 2020 compared to $1.08 billion in Q2 2019. Operating income was $684 million in Q2. That number was $1.33 billion for the same period the prior year.
For more quarterly fiscal numbers, see the end of the story.
“As I look out there, I am frustrated. I’m sure our investors are frustrated,” Alan Graf, executive vice president and CFO for FedEx Corp., said during the earnings call. “We are here at the bottom, but we can see a way out.”
FedEx cited weak global economic conditions, increased expenses at FedEx Ground — due to expanded services — and the loss of Amazon as a customer as a few of the big headwinds for the quarter. FedEx’s decision to not renew its FedEx Ground contract with Amazon was made in August, and thus had a larger impact on Q2.
As a result of the weak earnings, FedEx has now adjusted its projected earnings per diluted share for fiscal 2020 to be $10.25 to $11.50.
During the Q&A portion of the call, analysts had a lot of questions about the earnings miss by the FedEx Ground segment. Operating income for FedEx Ground was $342 million in Q2 2020 compared to $644 million in Q1 2020 and $590 million in Q2 2019.
FedEx execs repeatedly cited that they underestimated the upfront costs related to the shift to seven-day delivery. The company also anticipated handling about 33 million packages on Cyber Monday, but that number turned out to be more like 38 million. Couple that with the fact that the peak holiday rush was six days shorter this year, which equated to less time to handle more packages, and FedEx Ground struggled.
And as the Ground questions continued from analysts, Fred Smith — founder, chairman, and CEO of FedEx — finally said, “We have answered it three times. … Not sure it is productive to plow this ground anymore."
Geopolitical tensions were again referenced as having a negative impact, though FedEx leaders are encouraged by what they are seeing in regard to a possible U.S./China trade deal. They are also more confident in the Brexit strategy then they stated previously.
The TNT integration, which has incurred behemoth expenses over the past several years, continues. However, FedEx plans to have ground interoperability in Europe by May 2020.
One of the ways FedEx does plan to cut costs is through the reduction of flight hours — post-peak— by 6-8%. The reduction will occur both domestically and internationally. This is in part a cost-saver, but it also correlates with the fact that FedEx will have a “net reduction of several hundred pilots” next year due to retirement.
So, when does FedEx expect to see its myriad of investments in new technology, facility improvements, and expanded services start to pay off? Smith said by Q4 all of those strategies should “begin to bear fruit.”
All eyes on Q4.