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FedEx coming out with results it's seen as economic belt whether, even as it clearly has its own issues to work through, namely this overhaul of its businesses. Lee Costco is our senior transport, logistics and shipping analyst here at Bloomberg Intelligence and Lee a good report here from FedEx, whose shares are right now up about two percent. A forecast that came in better than most people expected, including the range that it offered.
Yeah, it definitely was a nice print for their third quarter, which includes their peak season in December. It shows us that they're really executing on their plan. The beat was really driven by their express business or their parcel business. Their freight business, which is their less than truckload business, continues to struggle. That's really not a company specific thing, that's an industry thing. The LTL market has been pretty weak over the last year, and we expect that weakness
to continue. I think people were encouraged about the fact that they raise their full year guidance. You know, they did put out a twenty five dollars EPs target for twenty twenty nine when they had their analyst AA a couple of months ago. You know, we've written over the last month that, you know, we think that might be conservative if the company continues to execute on its restructuring plan and assuming that the you know, the economy doesn't
create from here all a recession. You know, I think that you know, its numbers can be can be made.
Lee.
I know it looks that some of my banker buddies got to this company at some point because they are going to spin off their freight unit.
I guess sometime in June. What are you looking for there? What's the what's what? What's the story there?
Do you think?
Yeah?
So, I think they're following the footsteps of UPS. UPS also had a lesson truckload business. They spun out whether they sold excuse me to a t f I, a Canadian company. Uh. And you know, I think what these parcel carriers want to do is they want to focus on you know that they're parcel carriers and not some of these ancillary businesses. You know, I think this will really sharpen FedEx's focus. U The LTIL business or the FedEx's LTL business is a great business. It's the largest
lesson truckload carrier in North America. It'll be an interesting spinoff. I mean, we'll see where valuations are by the time they spin it off in June. You know, like I mentioned, tonnage has been kind of depressed. So obviously maybe they're not getting the most that they possibly can, I mean because of the timing. But I think it is it is a good thing for them to do, and only are doing that, you know, they're they're they're doing things that that they that was you know, unheard of maybe
three five years ago. You know, they're combining their air and ground networks, and they're doing things within their businesses to really drive overall productivity. You layer on top of that technology investments to enhance productivity. You know, this could be a company that can you know, generate earnings you know, north of that twenty five dollars number that they put out for twenty twenty nine.
Lee final question too. We have about thirty seconds left. We know FedEx has sued the federal government for refunds on tariffs, any update, any progress on that front. Is this a meaningful number?
Yeah, honestly, I don't know much about that. They really didn't talk that much about it on the earnings call, but it would probably be would be a pass through that they get back to their customers, so it's not really going to impact their bottom line, and if it does, it'd probably be, you know, not meaningful.
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Well up, potential mega m and a trade reported today Potential Unilever is in talks to sell its food business to McCormick and what would be the biggest overhaul of the company since it was founded almost a century ago. We're talking this business could be worth about thirty three billion US dollars, so that would be a sizeable trade there, for sure. Let's get down into the details here. We can do that with Diana Gomes. She is a senior equity research channels.
To Bloomberg Intelligence. She's based in London, Diana.
This would be a big, big move for Unilever's what's the strategy here?
Yes, thank you. So the strategy for Union Lever would be really to simplify and refocus more on the higher growth imium skincare wellbeing beauty portfolio, which is what the company is trying to do in order to reach about two thirds of sales in the midterm. So it is not surprising that Unilever is considering a split. I believe the questions are more out that will be structured.
So is this a move?
I mean, I see the stocks of just fractionally today. Is this something that was expected by the street? Is this something the street would support? Is this evaluation that seems reasonable?
So the valuation we pam up with we calculated a potential nine times if it too a bit multiple or potential three point two billion euros of a BIT nine twenty twenty six for the foods business as part of unil Ever, which would be aligned with packaged food multiples and slightly below Union versus multiple at the moment, which accounts for the fact that foods has been a slower growth segment for unil ever, but it's still margin a creative, it's cash creative, so a quick sale at a non
favorable value would not be something that I see, you know, ever working for. But in the prior days, we have seen more chatter in the market about unil ever potentially spitting up some considerations for a split, spin off, a sale. There are many ipodsis being put out there, so it is not coming as a complete surprise. I believe the details are quite thin at the moment, so it's difficult to just say so.
But I think we've seen a lot in the consumer products state space just over the last several weeks several months, a lot of companies re examining kind of their their portfolio brands. And because there's been a lot of competition from private label there's been you know, a lot of inflation author that has been pinching the consumer, it seems like a lot of these companies are re examining their portfolios. Should we expect more of this going forward.
Yes, definitely. So that's a trend that we see continuing through through the year. And it is also possible that the current uncertain environment from the geopolitics risk potential boost to inflation as well, which would further squeeze consumers, is prompting strategic thoughts as well. We and and that's the that's the backdrop under which this this comes. So not completely surprised given that foods would potentially be the segment
more vulnerable in Lever's portfolio. But companies have been trying to simplify and get more focused. So that's the investment in their premium innovation allows them to better differentiate themselves from private toyable, more affordable options in the market, sometimes from smaller players.
So Diana, who's typically investing in these big consumer products companies like Procter and Gamble, Unilever, because I see, you know, kind of their stock prices are kind of flatish over time, not a lot of movement. They do have nice dividend yields three four five percent. Are these investors that in their portfolio they just want these stocks to represent stability.
That is one of the key elements for that staples that have been known for for that stability on income and some attractive dividend iills as well. So we see further buiveex and dividend growth still possible into the year, but obviously, with the potential for volume growth to not pick up as much as was initially expected free the war, it does raise some questions there.
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Let's go over to the consumer side.
When you think about where consumers spend money, well for enjoyment and entertainment and all that kind of stuff. They can go take a cruise, they can go to a casino, go to a theme park, all that kind of stuff. But if the consumer may face some additional challenges going forward, what does it mean for those businesses?
What does it mean for those businesses?
Credits out there, Jody Lourie, She's a Bloomberg Intelligence credit analy Jody, how do you think about some of the industries you follow again, kind of the cruise industry, the gaming industry, the theme park business, hotels, all that kind of stuff. What's your view of the consumer and what are your companies telling you.
So, I think, Paul, there's a couple of things to tackle here. First of all, of course, there's the pressure from the Iron War, which at the end of the day, I think there's more of an echo effect event, and it's more just adding to some of the pressures that the consumer is already feeling. We've been talking about the
K shaped economy. We've been seeing some of the effects of the K shaped economy in hotels, in theme parks, in cruise lines, in gaming, but we haven't necessarily seen a broader scale effect of this inflation pressure on the consumer when it comes to higher income consumers, and so I think that's where you're going to start seeing a little bit more of that creep in and that pullback by the consumer. But I think at the end of the day, when you look at the companies, a lot
of them are really well positioned. It's only the low twist rated companies that we are concerned about. The ones that are operating on a tight sort of cushion at the moment, such as six Flags, such as Hurts, the names that really are trying to get their balance sheets in order and trying to address fundamental issues at their companies that we're concerned about at this moment, right, especially when you.
Look at especially when you look at the fact that traders are now betting on the possibility of a rate hike as well. Not only have they priced out rate cuts for the rest of this year, they're now looking at possibly the FED needing to increase interest rates because of rising inflation. A rate hike would really be bad news for a lot of these weak barrors with a lot of debt coming up, wouldn't it.
It would absolutely scarlet And I think the key here though, is that a lot of the companies have been proactive in terms of deleveraging, and so for twenty twenty six, we actually don't have that much debt outstanding for a lot of the companies that we cover. It's really as you get in twenty twenty seven, twenty twenty eight, when it's that prolonged sort of view, that's when you start feeling the pressure. If this is a sort of you know, one year blip or so, I don't think it's really
going to affect them. I mean, we didn't anaunce us on a company like Carnival, for example, which you know they've been working their way towards investment grade ratings. They obviously are feeling the strain of something like Iran and it's going to possibly affect booking levels for a lot
of their consumers. But at the end of the day, for someone like Carnival, they've been proactively deleveraging, which is certainly a positive, and when we've looked at similar times in the past, it really hasn't affect EBIT of margins that much. Net income might be a different story, but EBIT margins not that much, which is a little surprising
for us. I think where we're sort of hesitant to feel really comfortable for a company that's unheedged on their fuel exposure is more in that secondary and tertiary effects related to something like this massive event, and also the consumer feeling pressure. By that I mean is consumers if they're not spending on the scuba diving, if they're not spending on the random excursions the same way, you're not going to have that gravy of cash flow that a lot of these companies feel.
It's the first weekend of March Madness, which makes me think about sports books, and my favorite sports book in Vegas is that Caesar's Palace.
It is just awesome to take care of you there. And I noticed Jody that.
Caesar's is I guess there's some reports that maybe they were going to be taken private by Tilman and Fertita. What does that mean for its bonds? What does that mean for bonds of other kind of leader companies out there.
Well, Paul, we've been a little bit concerned about some of our companies just because we're towards that tail end of a really good momentum of the past few years post COVID, and so for someone like Caesar's, while they do have change of control provision, which what that is is that's a protection measure for anybody who owns their bonds to put back the bonds at one hundred and one percent of par while those bonds do have that, there's reports by Wall Street Journal and others that indicate
that Caesars may have found loopholes or around their relationship with Vichy Properties, which is the one that owns about fifty percent of their properties. They have a sale lease back with Viacci. So not to get into too much detail, but if they're looking at ways to skirt conversations with key counter parties. I'm a little bit concerned when it comes to creditors, particularly when you look at where the bonds are trading, and they're trading so much below par.
I think that's a sign that maybe perhaps whatever deal might be forming is not necessarily going to be credit or friendly. Then if you think about Caesar's in general, the long history legacy Caesars, what happened with their LBO, what happened with their restructuring. Now we have El Dorado as the management team. They're the ones who bought Caesar's and took on the Caesars name. At the end of the day, though, I think a lot of investors have a hard time getting over a name that burned them
in the past. Feeling comfortable with this discussion going forward. We have a lot of companies within our sectors. We actually just publish something yesterday on it looking at the risk related to activist investors for a lot of our companies and what that could mean for these credits.
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The Business of Sports.
Nobody does it better than our next guest, Randa Williams, US sports business reporter for Bloomberg News. He doesn't mail it in from home like the rest of these folks live in the Bloomberg Interactive Brokers studiing.
We appreciate that.
Rinda, I'm so glad that you here because to me, I've been following closely this WNBA collective barting agreement because what I think we've all noticed over the last several years is just the explosive growth of Women's National Basket, women's sports and general. But certainly the WNBA and boy I did not think the economics for them reflected that agreement.
I remember when Kaylyn Clark was drafted. I think all of us Bloomberg included around the story that she was going to be making either it was seventy six thousand dollars or seventy eight thousand dollars. You think about the growth that she brought to the league as well as many many others. I mean, the league was growing before she arrived as well. And then she in her rookie class, Angel Reeves and Cameron Brinkin so many more served as a title wave and so their salaries didn't reflect that.
But they will soon.
They will soon.
But there was a lot of bad blood between the commissioner, Kathy Engelbert and the players and the players' union leading up to the agreement that they'll come to something together. Where do they go from here? Because I wonder how much of that kind of cast a paul over how they work together going forward.
It's a great question. And I think there was a picture that was posted, but I want to say it was by the women's the union side of things, and they toasted when they got a deal, and everyone looks happy, and of course they have to have a deal in order for the league to continue.
Right.
At the same time, there were some very very strong comments made that you know, in all my years of covering sports, both professionally and then as a kid, I've never heard anyone make comments like Nifista Collier said about Kathy Engelbert. And you know, we also reported that Kathy had conversations about whatever her next chapter was, meaning that she could depart the league. Now, is that still a factor now that a deal is close to being done, we're going to find out probably in the months and
maybe a year or so to come. I think that the next time she talks will be at the WNBA Draft, and I have no doubt that someone will ask about it.
Well, we know across sports globally, the main main driver of the economics is the rights fees.
Media rights fees.
Where's the WNBA these days?
So that was a big part of this, was that the WNBA agreed to a new media rights deal I believe it was in twenty twenty four with Amazon, ESPN and Comcast. And so that deal is going to pay them at minimum two hundred million dollars a year. And Okay, so when the players were having conversations, they're like, listen, we're seeing expansion fees rise. We're seeing our media rides field fees rise. And so they were like, if all of this money is rising, where is it? When is
it going to come down to us? And the league and the players saw two completely different ways for a long time, but they got on.
Middle ground, all right, and it's about time.
Frankly, I agree.
I mean, let's talk about college basketball because it is March March twentieth and March madness is in full swing here at Bloomberg. Of course, we have our brackets for a cause. If you have a Bloomberg terminal's b r KT go where. We've invited folks to put together their bracket and appoint the charity that they would get a winning donation if they do come out ahead. And these are always full of surprises, absolutely.
I mean, yesterday we saw Duke almost get upset by it. I was at a CBS watch party yesterday and everyone was on edge. And then of course BYU lost to Texas, and so that first round in that second round are always always dangerous. And I mean Ken is leading right now, so I mean it sounds like if he continues down this track, you know he'll be the winner.
I am close on his heels. I'm in the top four percent. How many points do you have right now? Twenty six?
I'm five sixty eight out of eight and seventy two people rank.
I have Duke winning.
I just pencil and Duke then I worked backwards. Oh and yesterday, let's not forget Carolina loss.
Oh here we going?
Where'd you got to school again?
In case anyday exactly so it was. It was a very good day yesterday. So how big is this.
For, you know, the media side of the business, because it just seems a lot of people are concerned and upset with college athletics in general because it's maybe gone swung too far the other way with nil and the transfer portal, and it's lost some of its cachet a little bit. Are we seeing that the numbers anywhere?
I think you're seeing it across competition more than you are with the numbers, because I mean, you look at Duke's game yesterday. Again, I don't want I mean to shame you because they came out on top, but you know you have more of these results and more upsets happening because college players are being paid more so they have the choice to go and play for a smaller school that might be close to home, or maybe go
somewhere far away that offered them an incredible price. Now, from the media rights perspective, Duke loses, and I can guarantee you there are media executives who are not going to be happy. And so Duke Kansas, all the blue chip schools. The farther they go, normally, the better the rights, the.
Better the ratings and because of name, image and like this, these athletes and the transferportal, these athletes can go to schools where last year, you know, wasn't even on the map. So which schools look most interesting based on the players, the players who have come over from other teams.
Which schools look I need to be in college to answer that question, because ultimately I would jump school I would jump schools every single year someone was paying me more. That's the right thing to do, I mean, that's unfortunately, that's a manipulative. Part of this is that if you are in a transferportal, Let's say you make eighty thousand dollars your freshman year, then you make one hundred and twenty, then you have a good season that same sophomore year.
Now someone's offering you five hundred thousand dollars. Now you're offering now you're being offered a million dollars. Why wouldn't you try to be a college basketball player for as long as you possibly could if you have no aspirations or you're not good enough to go to the NBA.
And that's what's happening.
And that ties into a story that Janet Lauren had yesterday from bloom reviewsa that some of these kids leaving the IVY League.
Which didn't used to happen, No, because they can.
Then because Ivy League does not play pay Neil money. But if you have a good season the IVY League, maybe a power school, we'll pay you. So boy, it's a whole new world. I would again, I just kind of characterize it as the wild West, and there is allowed to us. There needs to be some regulation, and I think we're starting to move that way.
There's a growing recognition there.
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Yeah