FedEx stock has ‘a lot of good things going on’: Analyst

Argus Research President John Eade joins Yahoo Finance Live to discuss FedEx earnings and the outlook for the company.

Video Transcript

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- FedEx shares moving higher in after-hours trading, up just around 3 and 1/2% following strong earnings from the company, revenue $24.4 billion. That's up 8% from a year ago. Guidance on full year earnings topping the Street's estimates.

For more on this, we want to bring in John Eade, Argus Research President and Director of Portfolio Strategies. John, it's good to see you. I know you had a buy rating on FedEx going into this earnings report. What do you make of the solid numbers that we just got this afternoon?

JOHN EADE: Well, sure, Seana, happy to talk about it. Thanks for having me on. Yes, several exciting things going on at FedEx here, right? You've got these good earnings numbers. They're in line with Street expectations. So they didn't fall short, and a lot of companies fell short in the latest quarter.

Their guidance is aggressive, much higher than Street anticipations for next year. So they're teed up to have a good year in their fiscal 2023. They've got a new CEO on board. They've got a higher dividend. They've got a new forecast, or focus on shareholder returns at the board level. So a lot of things good going on. And I think that's what you're seeing in the share price after hours here.

- And John, I want to ask you about competition in this space. Obviously, when you look at UPS, much further ahead in terms of how their stock price has been doing over the past year. And they also have competition from individual retailers in terms of their own logistics taking precedence. What do you see as the potential challenges for FedEx?

JOHN EADE: Well, they certainly have a lot of challenges. One right off the bat here is higher fuel prices. And they were able to pass along higher fuel costs to customers in pricing. A second challenge for them is a slowdown in volume. I think that's due to what's going on in Europe, what's going on in China.

But even so, their yields are much higher. So they're getting that pricing action to offset those lower volumes. And then, on more of the strategic level, Rachelle, that I think you're referring to, FedEx is partnering with a lot of corporations. It's not just Amazon that is doing the home delivery, but, you know, Walmart is stepping up. Target is stepping up. The drugstores are.

And FedEx is partnering with a lot of these non-Amazon market participants, and that's helping them drive growth, too. So I think those partnerships can help offset some of that competitive risk from other people in the marketplace.

- So, John, you mentioned the higher fuel costs. You mentioned the fact that the volumes of packages are down now. One thing you didn't mention, though, was a labor shortage. And I we talked time and time again leading up to the holiday season that was something that would be a huge headwind here for FedEx. Has FedEx been able to resolve that issue, or is that something that's still challenging the company at this point?

JOHN EADE: Well, I haven't had a chance yet to dig that deeply into the results. And management will probably talk about that on the conference call which kicks off in about half an hour. But that had been a cost of several hundred million dollars, a headwind to FedEx. And that's one of the reasons why their margins are in the mid to mid-high single digits, whereas UPS, which has a little bit better handle on it, is generating margins in the 13% to 15% range.

So I think that's going to be one of the new priorities for the CEO. And FedEx is actually going to have an investor day, an analyst day, later this month. And they'll probably set some targets as far as efficiencies and labor force is concerned on that day.

- So we'll all be keeping an eye on that. A big thank you there. Argus Research President, John Eade, thank you for joining us.