This is Bloomberg business Week Inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebec from Bloomberg Radio giving you that lovely setup on FedEx stock at its ties up four percent, still with about a one point two percent gain on some plans that it is looking to cut about four billion dollars in costs and by
coppying a strategy of its main competitor. We're talking about ups. You want to get to it, yeah, but the details is Thomas Black, Bloomberg News, Industrial logistics and aerospace reporter at Bloomberg News. He joins us on zoom from Dallas. Thomas, great to speak with you the news today. Talk to us about it cost cuts, merging. What stands out for you there is the big transformation of their of their company to go from two delivery network to one consolidated
network over time. That's really the big structural news. The cost cuts. It's a big number. Four billion and plus two billion more if they can get their network to run the way they want to, so it could be six billion in total out to their fiscal year twenty twenty seven, So big numbers there. It could really move the stock. I think the hesitation on the stock move maybe because investors want to see them really execute on this. There is some execution risk here, so we'll be watching
for that. I mean, this is all about improving and shoring up its margins, right because UPS has easily outpaced FedEx when it comes to margins. And to be fair Thomas, I feel like when we talk about FedEx and UPS, you have to remember they're not really the same operating models, are they. They are not. There's a couple of key differences. One as UPS does have that one unified network already, it's a union workforce, which can work in its favor
even though the cost for employees is higher. But there's a lot of efficiencies that they gain. I think FedEx wants to go after some of that. The other thing to keep in mind is that FedEx is a much
bigger airline. They move packages more by air. So right now the market is pretty tough there because after the COVID sugar high, we're now getting back to a more normalized market where you're also seeing a little bit of competition from the belly cargo from the airlines as they fly more, so that market, the demand there is certainly slack,
and FedEx is trying to adjust to that. Is that the big difference in terms of the margin difference where Ups even though it's got unionized workers and it pays a lot more to its drivers than FedEx does. Is it that FedEx has all of those planes and there's a lot more air deliveries that that's why their margins are not as good. What has been really the big difference that has made the two so different when it
comes to the margin front. That's part of the reason the air business just isn't as a high margin business. They also FedEx loses some efficiencies with its contractor model. It pays third party contractors to make that last mild delivery at its ground unit, and so there's some inefficiency handing off packages to those folks and also communicating with them to make sure that they have the right vans and number vans and drivers there in the morning they
pick up those packages. They've had a little trouble with that, and they're constantly renewing the contracts there and there's some churns so they don't have as much control over the
drivers because the contractors actually hire the drivers. UPS has a lot of efficiencies that it captures because a lot of times the folks that want to be drivers, first they have to work in the sorting center in the warehouse, if you will, and load those trucks, and then if they do a good job, then they might get hired at the driver because they make pretty good money and they already know the system and how it works and so forth. So there's a lot of efficiencies that they
gained there. Thomas and Maddie, you might not know this, but I actually worked for a day as a UPS driver when I was doing a piece here at Bloomberg, and it was and the company kept reminding me how different it was that UPS. It's all their own workers. There's no you know, outsourcing in terms of deliveries, and they talked about the importance in that different model. The other thing I will say, they were so nuts about data.
Every move a delivery person or pickup person made, everything was tracked and they knew the way to turn, make right turns, to you to get stuck at lights. I mean, it was pretty obsessive and pretty amazing. But but it obviously has made a difference in the company. Yeah, it looked really good in Brown too. No, I really didn't, but irushed it obviously, I need I need you to
dig up that video for me. But Thomas, I wonder I mean to Carol's point is all of this the culmination is at FedEx moving to become a UPS, to emulate UPS. I think the main difference is that they're going to try to do this without having a unionized workforce. They're going to keep those contractors. In fact, there was a memo by John Smith, who's head of the ground unit right now, telling its contractors, don't worry, we still need you. We're still going to use you. So they
they're still betting on that model. The CEO Rode Supermanium talk about having a hybrid model, whether they'll have some employees and drivers on the payroll directly and then they'll have the contractors. But they're going to try to combine them into one unit so that when a customer draws off a package, it just goes in a FedEx system and pop that on the other end without having In some cases you can have two delivery vehicles arrive at the same location, one from express and one from ground.
They want all those packages flowing through the same system. Hey, Thomas, how do you make sense to somebody who reports on a company that's doing, you know, massive cuts. Four billion dollars they're shooting for, and they do promise to raise their dividend. Is that kind of saying, hey, guys, we're on it, but we're going to make you investors, We're looking to make you happy again. How do we see that in terms of use of capital? Yeah, that's a
complex question. They didn't talk about job cuts today really at all. They had announced about a ten percent cut on some top management folks, and they have been letting people go in their freight unit and with their contractor model, they really don't have that much control over the drivers on the ground. So it hasn't been massive layoffs so far. And they didn't talk about that. But then again, they are cutting capital expenditures and they're they're shifting some of
that money toward dividends. They've talked about reducing some of that capex as a percentage of sales. And I think this is this is a new error for FedEx because for many years FedEx was always playing catch up to UPS, and UPS was the market leader, and FedEx has gotten
very close to them on the sales. But I think FedEx is saying, you know what, we're going to cool cool down on the capex and we might not try to over you know, we may not overtake UPS as the biggest a career, but we're fine with that because we're going to make more money and we're going to give some of that back to the shareholders. I think that's maybe the pivot point that we're seeing as well.
But two years ago, I believe FedEx was in a better position than UPS, partially because they pivoted quickly during the tightness of the labor market to hire a lot of workers. To what extent though, did that end up being the thing that killed them today, not killed them, but impacted their long term profitability. Well, this is where those two models really kind of showed how distinct they are.
FedEx did have a lot of trouble trying to hire folks who handle the package packages in the sorting centers, and in some cases they would handle all the volume, and that was a direct result of all of that labor shortage. UPS was a little bit protective because they do pay top dollar even for their part time workers. They get full benefits, so the UPS didn't have as
much trouble hiring workers. And but you've got to think that these these companies swell up and they and they shrink down often right every peak season, they swell up, you know, maybe by tens of thousands of workers, and then they swell down. So it's not unusual for them to flex their workforce, right. UPS does it too, right during the holiday season. And I will say that UPS will also, you know, if they need be executives during the holidays, they'll be out there delivering if that's what
they need to do they need to Ye. Lately they've been hiring what they call personal vehicle drivers, which are just people off the street and they hire them and you know, give them a uniform and let them deliver packages. So that's been a pressure relief vow for them is key. It sounds like the uniforms. Y, it was a lot of brown. M Thomas Black. Thank you so much for minding time for us. We so appreciate it. Yeah, be well. Industrial Logistics and Aerospace reporter up Bloomberg News on Zoom
from Dallas. You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the ihard Radio app, and the Bloomberg Business App, or watch us live on YouTube. Well shares of AI developers C three AI soaring about one month ago following a revenue forecast and comments by the CEO that we're both upbeat and led to more than a handful of analysts raising price targets on the company.
Last two trading days though a little bit differently and I have seen the stock drop nearly forty percent. In fact, yesterday it was the most ever in a single day, after short seller Kerrisdale Capital alleged serious accounting and disclosure issues at the company. The company, meantime put out a statement saying the shortseller's letter was a highly creative and transparent attempt to diminish the stock price. So let's get to it. Joining us right now is Tom Siebel back
with us. He's the founder, chairman and CEO of C three AI and the firm's third largest shareholder. The stock, by the way, has almost doubled here in twenty twenty three. We must also know Kerrisdale Capital, one of nearly thirty short selling firms being pro by the US Justice Department over potential trading abuses, and the company's owner, a saying earlier this year that the firm had not been contacted by any government agency's over investigation. Sadron is the head
of the company. The chief investment officer, Tom Siebel, thank you, thank you so much for being here with us. What do you say to the short sellers? Well, first of all, how are you? I am great, thank you, how are you? I'm doing okay, trying to keep up with the news flow. I wish it would get a little quieter. So let's
get to what the short seller is saying. They're saying that you used highly aggressive accounting to inflate your income statement metrics in order to meet self side analyst estimates for revenue and certain profit metrics, and to conceal a significant deterioration in your underlying operations. And they put this
in a letter to your auditor. What's your response to this, Well, I think this was a enormously creative and successful effort by a notorious short seller who it's widely reported as under investigation by the Department of justice in the sec okay, and has drug and alcohol convictions. And it's highly creative, highly successful to issue this screed that contains not a word of truth. Okay, short the stock published this letter
knowing that would move the stock. And I think yesterday this person made an excess of one hundred million dollars. So it was very creative, very successful attempt at what appears to be successful stock price manipulation. John the story, so tom so the charges or allegations of this short seller that's saying that you guys, are you know, presenting yourself as being in a high margin SaaS software service
businesses rather than one based on lower margin consulting. This is the letter they put on are you a consulting company or are you a software as a service business? About eighty five percent of our revenue comes from software subscriptions and fifteen to twenty comes from consulting services. This person of this short seller alleges that we report to get your ninety nine percent profit margins off of our largest customer, Advange, which is Baker Hughes. And there is
nothing in any financial statement that we'll support that. It's a complete fiction. And he says because it's ninety nine percent margin. There's something must be something wrong with it. Um, Well, he's you know, he's subtracting apples from oranges to try to come up with some sort of nefarious act. He alleges that the fact that we have unbuild receivables is very serious, suspicious, and good software companies don't have unbuild
receivable holes. And in the neglects to mention you know, the many many companies like UH Salesforce, Data Dog, IBM, Adobes, an Altics, SAP, all of which have many many, you know, very large unbuild receivables. Unbuilding receivables is just, um, you know, something for which you've recognized revenue for which you haven't submitted the invoice yet. It's very common in the industry. It's well understood it. And he's trying to imply that
there's something wrong with that. There's nothing wrong with that. It's proper accounting. But the guy succeeded. I mean sometimes crime pays, and it's stay off paid off for this person in a big way yesterday. So we you know, we after our hats are off to him. So Tom and I want to get into what you guys are doing in terms of AI, because that's initially why we asked you to come on UM. In terms of your accounting, Deloitte and Touch, they're the one who got the letters.
You're comfortable with their accounting, You've talked with them. You're comfortable with their disclosures. Our disclosures are correct. Our accounting, our accounting is absolutely correct. We have we have unqualified opinion statements from our independent auditors. We have best practices in terms of accounting, in terms of audit committee practices, and that I mean, this is just a bunch of poppycock. This is a trick that this this character played on
the market. And you know he made somewhere between a one hundred and two hundred million dollars at the expense of C three shareholders yesterday and so, and no regulators have reached out to you, or that firm hasn't reached out to you. Uh, they have not reached out to us. And while it's widely reported that these guys are under investigation by the SEC and the Department of Justice for stock price manipulation, we've not been approached by either those
regulatary bodies of this firm. And have you been buying any of the shares on the downfall um me personally or C three uh both. I have not been buying stock in the market, as you know, of the stock is up about I think one hundred percent year to date, okay, and it's been you know, we've reported in earnings announcement that you know, business is quite good and the business
climate is quite good. And my only hope is that these that this short seller in particular, and the short sellers short sellers out there, hold on to their stock because they're going to get in my opinion, they're going to get crushed real quickly, and then we'll pivot to AI A promise. How do you refute the short seller's argument that part of your success and gains is related just to the ticker name and the overall hype around AI right now, I think, I mean, it's just a
silly statement. I mean, is I think the name. I mean, I think there's no value probably attributed to that. The fact that we're in the AI market. I think that, you know, a rising scene kind of lifts all boats, and so we are clearly a leader in enterprise AI. Enterprise AI looks like a half a trillion dollar addressable market in not very many years. C three AI is in a position to establish, if not the leading position,
a leading position in that market. So there's no question that some of the upward pressure on the stock is due to the realization of the size of the addressable market opportunity to C three phases and quickly here I just wonder, as CEO, how do you not get C sick on these market moves because you had all these games then obviously a tough couple of days here, what is your thinking around strategizing for your long term goals despite the market volatility. It's very easy I ignore the
market and focus on the long term goals. Business is to build a great company, have satisfied customers, have a cash positive, profitable business, market leadership position, and you know, if we do that, we can just look. We have I think the last of last quarter or something like eight hundred and fifty million dollars in the bank. So we are unquestionably an ongoing concern. And I think if we focus on the big picture here, stay focused on the big picture, I think this will work very very
well for the shareholders. But we don't really look at day to day or minute to minute, or even month to month. I think, you know, as far as we're concerned, the market could close for five years. But I think this is going to I think this is going to work out very well for the shareholders, the employees, and the customers in the long run. And that's my job. So the reason I don't get seasick is I don't look at it. So Tom just got about thirty five
forty seconds here. So I mean, what is the big win for you guys in the next six months that you say, hey, listen, churtsellers, you've just so got it wrong. Oh, I think that if you're on the short side of this year. I mean, our business is good, okay, and we're in a position, you know, we trans recently transition to a consumption based pricing model that's really well received
by the market. We expect to see, you know, you know, as the fad when the fad gets ready to take its foot off the brakes, okay, as it relates to dealing with inflation, I think you're going to see C three as a very rapidly growing, market leading enterprise application software company that's profitable, cash positive, and that'll be reflected in market evaluation. Tom Sebel, thank you so much. I've c three a eyes. We said a lot of analysts
upgrading the stock last month. You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six eastre on Bloomberg Radio, the Bloomberg Business App and YouTube. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa playing Bloomberg eleven thirty. I'm bring a journal. Yeah, but you let me drive? Oh no, no, no, no, who's gonna drive? Honey? Please, I'll do the bride gravels. I'm want to drive the question.
This is the drive to the Clobe. Commmu than well, Brither Dawn on Bloomberg Radio. All right, everybody, we've got just about seventeen and a half minutes left in today's trading session, getting ready to wrap up on this Wednesday. Remember it's a holiday short and trading week. We do get the jobs report on Friday, um, but financial markets here in the US are going to be closed for the Good Friday holiday. Having said that, bouncing around here on the equity side, gaining the down just about a
quarter of a percent, high. As Charlie mentioned tech stocks in particular, the nastack down the most on a percentage basis, But it's really a big focus on what's going on in the treasury trade right now. That to year note, just to reminder, three seventy eight ten year knit with the yield of three twenty nine. So let's get to it with our drive to the closed. Guest and with Maddie and me is Bill Davis, portfolio manager at Hennessey Funds.
Bill specifically managing the Hennessy stands at ESG Large cap ETF ticker is st n C fun up roughly four percent year to day. Bill with us now on the phone from Boston. Bill, great to have you here on this Wednesday. Tell us a little bit about the fun and correct me if I'm wrong. But I think you guys made the debut. Was it like when we were kind of coming out of the pandemic. Yeah, I think
Karrol and Maddie that's right. We actually launched the fund in the first quarter of twenty twenty one, so s TNCs A nicely listed it actively managed ESG Large cap ETF and yeah, and we've basically got two years in the actual ETF itself and assets under management. What kind of flows have you I've been seen, and I'm really curious in particular the last let's say six months or so and more recently, just to get an idea of
investors sentiment. Yeah, I would say thats have well. So last year we basically even though the market was down eighteen percent, I think we were down twelve percent and change, and our flows went up by about ten percent. So we've got about forty five million in the fund today. We are expecting some inflows, some actually potentially significant ones really just based on track record and outperformance and risk management, and I think this is a market where risk management matters.
I want to talk about the fact that it is an ESG fund, and Carol has flagged this and we've talked about it a lot. ESG funds falling out of favor a bit, garnering more and more scrutiny, the absence of consistency and ESG classification, showing the hurdles investor's face when trying to allocate capital, especially given these macro headwinds.
But against that, backed up, MSCI has said it's planning to dramatically reduce the number of funds, it gives top ratings, and I wonder how you're feeling about those changes that are going to take effect by the end of this month, and are you feeling any impact as a result. Yeah, so no, short answer, not feeling any impact. I think that ESG is a political wedge issue, is largely a dead end as a sort of an investor sentiment issue.
I think that there are a wide swath of investors, institutional, high net worth, ultra high net worth, mass, affluent, millennial, you know, people with ten dollars to invest and people with one hundred million dollars to invest, to care about these issues or they don't, right, So, I mean, I guest that there's people that don't care about them, but the people that do are not being dissuaded by congressional inquiries into you know, ESG. I just we have not
seen any effect whatsoever. And by the way, I actually do welcome the idea of additional scrutiny. There are too many products that are either me too or you know, just lack authenticity, and I do think a weeding out of the general landscape would be a very good idea well. And part of the big problem is, you know, every ESG fund. It's not apples to apples. There's inconsistency, to say the lead in terms of classification. So how do you I want to get into we want to get
into your picks, But how do you define ESG. You're an actively managed fund? So what says ESG to you before you look? You know that requires you? Then yeah, no, no, no, really good, really good point. And by the way, I will also say, there are a lot of valid approaches to ESG that are very different from what we're doing.
Like I could make an argument that you could have an ESG product that invests in energy transition, right, so that's mostly investing in today's oil and gas companies trying to pick the winners and losers in the transition to a lower carbon economy. Our particular product, this problem STNC is fossil free, it's weapons free, it's tobacco free. And really, then what we look to do is invest in the intersection of good ESG and good fundamentals across as much
of the economy. And I should point out our market universe as the SMP five hundreds sore basically US large gap. But we are you know, we happen to be overweight industrials frequently, and so we are not afraid to invest in segments of the economy within which the transition is not only important, but there are going to be inherent risks for companies in their investors when they aren't being ambitious enough in that transition. And so we think that
there's real opportunity for investors to generate alpha there. So talk to us some names here and what your KPIs are for those doctics. So we have twenty four KPIs. I'm going to start by saying that key performance indicators for everybody ahead. Key performance indicators. Sometimes we call them material risk factors because I think really what we're trying to do is on an industry group basis, identify those material risk factors and then weight them in according to importance.
So like a practical example of that is automotive products. We get asked pretty frequently about Tesla, and you know, we try not to let personal feelings, you know, get involved in decision making. And what I will tell you is Tesla is very good at certain things like low carbon or carbon transition, but it happens to be very bad at a lot of the S and G stuff like governance, injuries and fatalities, human rights, worker rights, those things.
In the end of the day, Tesla sometimes is in our portfolio because it happens to be in the top fifty percent of its industry group, largely as a result of what it's good at and as a result of the waiting of what it's good at. And that's essentially how the KPIs work for us. And some are E, and some are S and some are G. Unfortunately, we only have about forty seconds left here. Pick your name, MasterCard. We know you like. You've also recently taken positions in
GE and alphabet. You can pick one and just tell us why. Again, only about thirty five seconds. Yeah, well, I'll take GE as an example. I mentioned sectors that we like. We tend to like industrials, we tend to like healthcare. We happen to be overweight in financials for the first time. But GE is kind of an interesting name because it plays in both industrials and to a certain extent healthcare. It's a strong yes um, it's it's
a strong um yes G name. And there is a very strong signal right now around new sentiment, which is not typically a big signal for us, but fundamentally we like it as well, and we think it's a good time down yet Catalyst, I mean, by the way, they're up about forty three forty three percent so far here in twenty twenty three. Great conversation, Bill Davis, thank you, come back to you and portfolio manager at Hennessey Funds
turning matting me on the phone from Boston. This is the Bloomberg Business Week podcast, available on Apple, Spotify, and anywhere else you get your podcast. Listen live weekday afternoons from three to six Easterning on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg Business App. You can also watch us live every weekday on YouTube and always on the Bloomberg Journal of them