More earnings disasters like FedEx may be lurking: Morning Brief

·Executive Editor

Updated Mon, Sep 19, 2022, 3:00 AM3 min read

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Monday, September 19, 2022

Today's newsletter is by Brian Sozzi, an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

I spent the weekend reflecting on some blunt analysis I provided on Yahoo Finance Live Friday morning post-FedEx earnings warning.

Specifically, I called the shocking pre-announcement by FedEx that sent the stock crashing 20% by the closing bell an “embarrassment” on the part of management led by new CEO Raj Subramaniam (who has been at the company for a long time in other leadership spots). I then took to the Yahoo Finance TikTok page and lit up FedEx management in 45 seconds.

“Was I too harsh on them?” I wondered. “Should I be putting more stock in the warning happening because of the economy and not because of poor execution?”

The conclusion I came to on all this: No. Because this is FedEx, founded in 1971 by billionaire businessman Fred Smith and etched into the very fabric of lives globally. And these earnings whiffs have arguably become the norm for FedEx in the past year, which led to having to make a deal with activist DE Shaw earlier this year.

Basically, FedEx continues to drop the ball. The economy may be challenging, but that doesn’t entirely explain missing earnings estimates for a quarter by a couple of dollars and then withdrawing your full-year guidance. Doing those things in this environment may be the norm at tech companies, but it shouldn’t be the norm at a company like FedEx.

A FedEx worker delivers packages in Manhattan, New York City, U.S., May 9, 2022. REUTERS/Andrew Kelly (Andrew Kelly / reuters)

“It hurts on the guidance, for sure,” Argus Research president John Eade said on Yahoo Finance Live. "But this is also a black mark on the brand new CEO."

FedEx must now regain the trust of investors, which could take more than a year. The logistics giant must make painful decisions to restore profit margins and cash flow – they took the first step on Friday, but way more needs to be done.

I wouldn’t be shocked to see an activist swoop again, demanding more aggressive change at FedEx — not unlike what we have seen at UPS under new best-in-class CEO Carol Tome.

And in terms of the broader market, there are likely to be more disasters like FedEx between now and November as earnings season ramps up.

The reasons why:

Overly optimistic execs (see FedEx’s June investor day)
Inventories have gotten out of control (see retailers)
Costs are too high given weak demand (see FedEx and tech companies)
Europe is weak and U.S. investors don’t get it
Asia is weak and U.S. investors don’t get it

Have a great wealth-building week!

Special Programming

I will be in at Salesforce’s big annual gathering known as Dreamforce in San Francisco all week covering the massive pep rally for the software giant. This is a fun event that offers great insight into the state of technology and, of course, the Dow component Salesforce. Tune into Yahoo Finance Live for our reportage!