This is Bloomberg Business Week with Carol Messer and Jason Kelly on Bloomberg Radio. Well, fed X is one of the names people are watching after the bell beating estimates for the third quarter, suspending their outlook. No big surprise there. Let's get into with Lee Classgow Bloomberg Intelligence. He joins us on the phone. Lee, great to have you with us. First, I trust all is well and healthy with you. Yes, I'm working, uh in the home office today. There you go,
me too, Me too. Alright, So tell us tell us what you saw from FedEx, because you know, a lot of times people are coming out with numbers and investors are running for the hills. Not so here. Yeah, let's listen. So in the third in their third quarter, I mean they had some I gut some good news if you will. Um, they'd beat expectations, but I would caveat that and saying that expectations have been extremely low for fed X. Uh,
they've kind of disappointed the streets. For um. If you look at the last twelve months, I mean, their stock is vastly underperformed the SMP the stocks down about forty percent versus the SMPS down around over the last twelve months, and that compares with the UPS, which is underperformed the SMP,
but just by a hundred basis points. So, um, you know, fed X has kind of had a couple of quarters of where they've disappointed and the kind of the trends that we've been seeing to create that disappointment haven't gone away. I mean, they're seeing weaker economic demand. UM, they're seeing uh, you know, higher costs because they're expanding their ground service to six and seven days delivery. We all knew about
the Amazon business that they lost on the UPS picked up. Um, they're they're talking about, you know, a mixed shift to to lower yielding UH packages which is B two C versus B two B. These are all things we know about. These are all things that are going to weigh on the company in the coming quarters. UH. And they also, you know, it's relatively you know now that the CFO is upping aside the team under the current UH president CEO Raj it's kind of needs to coll us a
new management team. You know, everyone there have been in their positions for now for less than two years, so you know, they really have a lot to prove. UM and what what I would say, is that you know, on the good news for them in the coming months is while you know, COVID nineteen is definitely going to be a strain on the global economy and demand, um, you know, it does drive the need for expedited freight.
So you know, if you if you need products, it gets to sell and it makes economics sense to do it uh in the air or you know one day delivery on the ground. You know you're going to use the fed X or UPS or another expedited kind of kind of methods. So that's interesting, could be good for them. The snap Act can be very good for them. And if you know, they get T and T integration right, which is the big M and A that they did a couple of years ago, which has kind of been
hamstrung by a cyber attack that hit that business unit. Um, you know, they're finally you know, getting some synergies that would stay in that business. Uh. You know, in the next twelve months, hopefully that will improve. Uh. And then you know, we are seeing or hearing that you know that the Chinese economy is getting back to quote unquote a more normal uh production level. Obviously they're not a yet,
but you know, anecdotally that's around seventy five. So you know, as that all as the stuff comes off the assembly line, it's got to get to the shelves because if anyone's been to a grocery store or a costco lately, you know, those shelves are pretty barren, especially when it comes to the toilet paper and hand sanitizer. All right, So a few questions. They got thirty three billion worth of debt and I'm assuming some of that is because of that acquisition.
I mean, is that manageable? Is this something that we have to worry about that this is gonna be another company that's a tap a credit line or do something like do we have to be nervous about that debt load for FedEx? No, because they do have some flexibility and their tap x UM. You know, they can delay the delivery of planes if they wanted to. Uh, they can slow down some of the money that they've been spending in redesigning and upgrading um their networks to increase
the amount of automation that takes place. So they do have some flexibility. Uh. And at the end of the day, they're still profitable, they're still cash so positive. Um, you know, the world would have to be really bad, uh for FedEx to have a liquidity issue at least from our standpoint. Um, but you know, we've seen two black slawns in the
last two months, so who knows? All right, So what do you worry about hearing when they hop on the call with you guys Laterly, I'm really really curious about, you know, how they um kind of quantify the financial impact and COVID nineteen. You know, they're they're saying they're not giving guidance anymore. And to be frank, that's a good thing because they really gave some poor giants over the last two years. They were adjusting it up or down. So it's kind of a good thing that they're kind
of stepping away from that. But like just to get them because I mean, their margins were just not good. I mean their margins were two percent from a consolidated standpoint, that's down over three hundred basis points. And you saw that across the board. Their express business was down significantly. The margins were only one point five percent, uh, and then their ground margins, you know, we're almost down by U they were down to about six point one percent
the one and when we're talking about margins. The one group part of their business was set X Freight, which is there left in truckload business. You know, a lot of people don't realize that though they're the biggest lesson truckload provider, and those margins went up on spaces point from the quarter. Alright, Lee, we really appreciate your instant a context leak Classgow follows FedEx for Bloomberg Intelligence, joining us on the phone from home.