Wow, the FDX management team and Fred handled it well while offering missed messages. Perhaps the most important outcome was that FDX WILL NOT OFFER QUARTERLY expectations any more but will instead only offer full year expectations. This seems smart based on volatile short-term domestic and global economic issues, practices of other peers and it allows them to focus on long-term goals and objectives. Smart. They improved overall margins from 9% to 9.6% which was impressive and allowed them to beat EPS despite missing on revenue slightly. They issued FY '14 EPS projections of 7-13% over '13 results. That's well below the 21.6% analysts had going in. They are happy with the progress of their $1.7B cost savings program as it is slightly ahead of schedule.
Perhaps the most important discussion surrounded the trade-down of service levels and how FDX is responding to it. Fred stressed that this is only a problem if not addressed well by capacity adjustments. A lesser need for Int'l and domestic priority means more volume for express, ground and Smartpost. If that scenario is managed well (and it's the most profitable segments anyway at present), it can turn out to be a positive trend. He also stressed that the new capital expenditures on planes are not for near future growth but rather for cost containment due to high jet fuel costs. Over the longer-term it is the right move. He also mentioned that there should should be a glut of fuel efficient plans becoming available as the major airlines and lessor companies buy the newer planes being offered.
One great question from my perspective and one that gave the FDX management team pause I thought came from an analyst at Stifel Nicholas. She asked about the potential new law concerning the use of independent contractors in the state of NJ. The reaction was classically defensive (we'll vigorously defend..). Overall, they handled the questions well and our folks can benefit by gleening the best of what was
C'mon guys- where the discussion on the FDX report? One wonders what the closing yesterday would have been if the markets didn't react poorly to Bernanke's comments? For awhile it was up nearly 4% before coming down to 1.5. Today, FDX is off about 4.3% thus far perhaps in part due to the JP Morgan downgrade from O/W to neutral. It seems the issues are the continuing choices of shippers to trade down on service levels, the fact that much of the savings of the $1.7B cost reduction program that have not been realized yet won't be felt until 2015 (JP Morgan's analyst clarified this fact on the earnings call) , fuel costs are uncertain, another U.S. to Asia flight is being cut (growth retracting?), the N.J. independent contractor senate Bill and finally the announcement that they will only provide yearly projections vs. quarterly. Even though I believe this is a wise move, maybe the market thinks it hampers transparency.