FedEx Corporation's big earnings miss and removal of guidance sent a shock through the stock market. The warning that the U.S. economy could be in for a tough winter came after a weak retail sales report.
MarketBeat.com - MarketBeat We should've seen that the miss was going to happen. As weary shoppers return to physical stores and press the 'add to cart' button with less fervor than during the epidemic, online shopping behaviors have moderated. Businesses have taken a cautious stance on spending in the years to come. Fuel expenses have compounded FedEx's troubles.
The warning goes beyond the transportation sector since FedEx is a bellwether of economic activity. It shows that inflation is having a bigger impact on consumer and business confidence. If interest rates are raised to tame inflation, fewer Americans will be able to get mortgages, auto loans, and pay down debt.
It might not be all bad. When it reported second quarter results, United Parcel Service painted a different picture. The company delivered 8% year over year profit growth. The FedEx bottom line fell.
The company tripled its share repurchase program target to $3 billion. Big Brown has a larger forward yield edge over FedEx due to the increase in the dividends.
Is the real shipping and logistics bellwether up to date?
The three-month period ended on June 30th. FedEx had a fiscal Q1 bombshell. The macro outlook might not have been as bad as was reported. Which leads to the question...
In the weeks ahead, the tone of the updates could be reconciled. Since it faces the same demand and cost pressures as FedEx, it would be surprising if it didn't temper its enthusiasm for future growth before or during its October 25th report
If the management of the company lowers its growth forecasts, it would be a bad scenario for the company's shareholders. This summer, the company projected $102 billion in revenue in the year 2022.
On the eve of the Fed's July rate hike, this came as well. This shows that economic uncertainty has gone up and that upcoming announcements may not be as optimistic.
FedEx does not have a new CEO that injects life into the company, which is one of the reasons why it is not going for it. Carol Tome, a former Home Depot CFO, took over as the company's leader last year and has been praised for her ability to navigate through the current economic climate.
U.S. consumers can decide whether the new leadership team can keep exceeding expectations. The degree to which people choose to spend this holiday shopping season will likely have a profound impact on the performance of United Parcel Service. The recent war between Russia and Ukraine could reignite energy prices.
It is difficult for investors to choose between the leaders of the shipping industry. FedEx seems to be the better bargain. It is trading at roughly 11x trailing earnings compared to 13x for United Parcel Service. The P/E ratio difference may be insignificant for the income oriented investor.
FedEx andUPS are in the same situation despite the differences in their recent market updates. Both stocks are likely to go in the same direction from future insights. When the FedEx news broke, we saw the effect on others.
The correlation between the stocks isn't as high as one might think. The correlation between FedEx and United Parcel Service is only 0.67. FedEx has been more volatile due to its international exposure.
Since the FedEx announcement, Wall Street hasn't budged from its opinions. Morgan Stanley was the 13th firm to reiterate it's FedEx rating. The analyst offered the bleakest price target yet at $125. Since the FedEx warning, no changes have been made to the ratings of the two companies.
Since FedEx took one for the team, things have been quiet on the doorstep. It is hard to imagine that this key economic story won't be a package deal.
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