Yesterday we covered Fedex’s latest disastrous earnings report, in which the company disappointed Wall Street yet again reporting a huge miss to expectations while slashing guidance.
Naturally, analysts – who were once again wrong in expecting a rebound for the logistics bellwether – were quick to slam the results (it’s the company’s fault, not theirs for failing to predict what is going on) with Deutsche Bank analyst Amit Mehrotra writing that FedEx’s earnings report was “breathtakingly bad” with operating profit and important international priority yields down 6% year-over-year in its fiscal second quarter.
“To be fair the market was braced for a weak result…but we’d characterize these numbers as weaker than even the most bearish estimates”, Mehrotra wrote, adding that “earnings appear to be in free-fall, with seemingly little clarity being provided by management as to the duration of the current downturn and drivers of recovery.”
However the real reason why Wall Street is angry, is because FedEx became the latest confirmation that there is something disastrously wrong with the recovery narrative, the same one that has pushed stocks to all time highs even as critical names such as Fedex, which are a leading indicator of global trade and commerce, remain in free fall.
To get some sense of what is really going on, we listened to the company’s earnings call, which did not disappoint, because as CEO Fred Smith explained, Fedex’s results are merely an indication of just how bifurcated everything is in a world that has become the story of two economies – a good one in the US, and an ugly one everywhere else – and while the stock market is “very bullish”, the CEO concluded that the “industrial economy does not reflect any growth at all.”
We’re — as we’ve said several times — pretty optimistic about where we’re headed and going into January, assuming there is no more macroeconomic deterioration. I might also say that I think in this country, there is a little bit of a misunderstanding — estimation of what’s going on in the rest of the world, the e-commerce growth, the technology sector that we had, the tax cut, all of these things have led us to have a high increasing employment. It’s led us to have reasonable GDP growth. That’s virtually not true any place else in the world.
And the industrial economy, particularly in Europe which was hit by the ricochet bullets of the US-China trade war, almost went into recession this time last year and it still hasn’t recovered and Germany in particular is extreme… The US industrial economy, which is much more tied to international trade and, of course, the GM strike and now the MAX shut down, it’s been negative for months now. And so, our B2B Ground volume is growing and our, what is it John, what’s our freight volume, it’s up a little bit or about flat.
Yeah and so that’s a reflection of the industrial economy and a large truckload carrier, they just went bankrupt, Celadon. So, it’s really a tale of two economies and the stock market, of course, is very bullish, but the industrial economy does not reflect any growth at all, worldwide, to speak of.