FedEx investors frustrated with new CEO after forecast withdrawn

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LOS ANGELES — FedEx Corp has shaken investor confidence in the new chief executive’s vision to deliver a long-awaited turnaround for the shipping company, sending its shares into a tailspin after it withdrew its earnings forecast for last year last week. last.

After Raj Subramaniam took over from founder Fred Smith in June as CEO of FedEx, the Tennessee company generated goodwill by posting a stronger-than-expected full-year earnings forecast and raising its payout by dividends.

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Investors, already frustrated with last year’s overly optimistic estimate for the holiday season, were disappointed by its earnings warning on Sept. 15. By the end of trading that week, FedEx’s stock price was down more than 28% from Subramaniam’s. first day as CEO as investors questioned FedEx’s forecasting ability.

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“You can’t say things are good, give advice, increase the dividend, and then blow shareholders to shreds,” said Gary Bradshaw, portfolio manager at Hodges Capital Management in Dallas.

FedEx said it would discuss the global economic outlook and results for the quarter ended Aug. 31 on a conference call after the market closed Thursday.

Reuters spoke to Bradshaw and five other investors who bought FedEx shares when they looked cheap compared to its more profitable and successful rival United Parcel Service, saying an overhaul of FedEx’s business promises healthy yields. The realization of this vision now seems further away than they had hoped.

Most of those investors, including one who sold most of his holdings in January, still believe FedEx can eventually generate higher profits by shedding assets, cutting costs and combining its independent express and ground businesses.

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But patience is running out, especially after UPS executives stuck to their own forecasts this month.

When asked if last week’s warning had shaken his confidence in FedEx’s new CEO, Bradshaw replied, “100%. I wish I owned more UPS and forgot about FedEx. Bradshaw said the company held about 15,000 shares in multiple accounts.


Investors agree that business conditions are deteriorating due to falling e-commerce demand, soaring inflation and intermittent COVID lockdowns in China. But most believe FedEx’s pain was mostly self-inflicted, noting it failed to ground planes, close company offices and cut unnecessary work hours fast enough to compensate. slowdown.

“The decline in profitability cannot be reconciled with the more modest shortfall. The numbers don’t completely add up,” said David Katz, chief investment officer at Matrix Asset Advisors in White Plains, New York, which owns about 58,000 FedEx shares.

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Katz remains confident in FedEx for the long term, but he and other investors want to hear from executives on Thursday detailing what went wrong and how they will fix things.

Analysts and investors have focused on the deterioration of FedEx Express, where a deflated pandemic e-commerce bubble has hammered demand for lucrative air shipments to the United States from Asia, a business where the company has more bigger footprint than UPS.

When FedEx said last week that Express’s first-quarter revenue would decline by $500 million, Deutsche Bank analyst Amit Mehrotra estimated that would translate into a similar decline in profits. He said in a research note that the one-to-one drop implied a “worrying inability” to manage spending.

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The silver lining was that the news clarified FedEx’s challenges. “It’s ‘so bad, it’s good,’ in terms of making it even clearer that a much more drastic overhaul is needed,” Mehrotra said.

FedEx also said last week that it was struggling with express service issues in Europe, where its costly and struggling TNT integration is in its seventh year since the deal was struck in 2016.

FedEx has warned that business conditions will deteriorate in the current quarter, which ends at the start of the key Christmas package delivery season. Warnings from FedEx and others in the global freight market clouded the year-end shopping season.

FedEx said first-quarter revenue from its U.S. ground delivery business would miss company targets by $300 million. Last year, the company overestimated growth for the 2021 Christmas season, damaging relationships with independent delivery providers and leaving investors wondering if FedEx can effectively model demand.

Late last month, FedEx told Reuters it was confident in its “stress-tested” holiday forecast for this year.

Trip Miller, managing director of Memphis-based hedge fund Gullane Capital Partners, said he didn’t blame FedEx for its missteps, but it locked in profits by selling more than 90% of its shares in January as he saw warnings that demand was dropping.

“They’re not running this ship fast,” he said. (Reporting by Lisa Baertlein in Los Angeles and Jamie Freed in Sydney; Editing by Ben Klayman and David Gregorio)



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Robert D. Coleman