No – FedEx’s Problems Do Not Signal A Recession (Or A Bear Stock Market)

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He may be new to the job, but FedEx
CEO Raj Subramaniam should know better. Second quarter 2022 sales 5.5% over the same quarter 2021, declining total earnings (-15%) and earnings per share (-18.6%) mean there’s a serious company issue — not the excuse for the global recession it offered Jim Cramer on CNBC,

Here are the CEO’s comments company press release,

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FedEx’s Raj Subramaniam said, “Global volumes declined as macroeconomic trends, both international and US, turned significantly worse later in the quarter, we are addressing these headwinds swiftly, but the pace at which conditions have changed.” The first quarter results are below our expectations.” Corporation President and Chief Executive Officer. “While this performance is disappointing, we are aggressively accelerating cost reduction efforts and evaluating additional measures to increase productivity, reduce variable costs and implement structural cost-cutting initiatives. These The efforts are in line with the strategy we outlined in June, and I am confident of achieving my FY 2025 financial goals.

The market certainly took a no-confidence vote, sending FedEx down more than 20%. This reduced its declining market capitalization to $41B, 73% less than UPS’s $152B.

Perhaps the excuse for a global recession would have been better received by Wall Street if it were not for FedEx’s extended underperformance. And the troubles are not just related to Covid or inflation. They also date back to the 2019 growth period. Here’s a comparison of FedEx’s nearly 0% stock performance with that of UPS and the S&P 500 in previous years (all results include dividend income).

Key Takeaway: FedEx Is Neither Bearish nor a Bear Stock Market Indicator

The company needs (and needs to) fixing, and is now faced with rising costs (inflation), increasing competition (such as reforming the US Postal Service and Amazon’s).
distribution services) and a capital market that is becoming more discriminatory with respect to risk and weaker sales/earnings. (And that means that those “2025 financial targets” that are too far are underweight. In fact, they indicate a management contingency that heightens the risk even more.)

Then there are these two bullet points in the press release:

  • “Estimated capital expenditure for fiscal year 2023 has been reduced to $6.3 billion from the earlier forecast of $6.8 billion” [Meaning a cut of $0.5B]
  • “The company reaffirms its previously announced plan to repurchase $1.5 billion of FedEx common stock in fiscal year 2023”

So, in these challenging times, strategically and competitively, will you cut capital expenditure (company reform) and reduce equity capital? Not at all

Therefore, do not view FedEx’s results, comments and action plans as a sign of a global recession or an impending bear stock market. Instead, the former major is fueling business schools’ interest in upcoming FedEx case studies of the company’s trial and tribulation management failures.

Bottom Line: Media Reports Continue to Mislead in This Developing Bull Market

This lack of media understanding combined with the search for anything negative really showed itself last week. The new information and many interpretations of market developments were overly simplistic, cherry-picked and mourning-we-fodder for horror, bearish stories.

The good news is that Wall Street professionals are not impressed. They continue to separate strong company stocks from mediocre and troubled ones. Importantly, given the changing and challenging conditions, this means that this next bull market will be more selective rather than a rising tide lifting all boats. Therefore, we can expect actively managed funds to outperform passive-indexed ones — perhaps significantly.

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