FedEx Friday – Ending the Week on a Sour Note

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FedEx Earnings → Signal for TransportsThis is bad:

Global volumes declined as macroeconomic trends significantly worsened later in the quarter, both internationally and in the U.S. We are swiftly addressing these headwinds, but given the speed at which conditions shifted, first quarter results are below our expectations.” – FDX CEO, Raj Subramaniam

FDX is down 20% and their profit warning is dragging down other shippers (UPS is down 7%) and, fortunately, FDX is not a Dow component but blaming the Global Economy for their problems is spooking the whole market.  China is shut down again, Europe is a mess, Currency issues are plaguing the company but, in REALITY, revenues are still $23.2Bn vs $23.52Bn originally expected so blaming the Global Economy for guiding earnings down 33% on a 1.3% revenue miss is disingenuous to say the least.  

The company is predicting an even worse Q2 (fiscal) with a 50% reduction in earnings forecast ($2.75 from $5.46) on perhaps 5% less Revenues ($23.75Bn) so again – the Global Economy is doing their part with a very slight miss – this is an internal FedEx issue – not the end of the World – they are just blaming the World for whatever is ailing them.

The company is fighting back with cost cuts including a reduction in flight frequencies, volume-related reductions in labor hours, consolidation of sort operations, cancellation of planned network capacity and other projects, deferral of hiring, and closure of over 90 FedEx Office locations. It also plans to shutter five corporate office facilities but all those laid-off employees will be very happy to know that the company is also buying back $2.5Bn worth of their own stock in the next 6 months (now that they’ve put it on sale).  

Is FDX a good buy down here?  Well, they are still making about $15 per $165 share and, as I noted, the revenues are still there.  $165 is $45Bn in market cap and they bottomed out at $100 in 2020 when the World was actually CLOSED (and they made $1.3Bn that year) and last year they made $5Bn so – if things normalize, $45Bn is a joke for the company – no wonder they are buying 5% of their stock back.

In our Long-Term Portfolio (LTP), the FDX 2025 $120 puts should be close to $20 this morning – certainly I don’t mind taking that risk on 5 of them and getting paid $10,000 in exchange for our promise to buy 500 shares of FDX for net $100 so we’ll do that and we’ll also pick up 10 of the 2025 $140 ($60)/180 ($45) bull call spreads at net $15 ($15,000) and that will put us in the $40,000 spread for net $5,000 with $35,000 (700% upside potential) if FDX can get back to $20 less than they were yesterday in two years.  

We haven’t had FDX in the portfolio for a long time but this seems like a nice opportunity to take a stab at them.  We’ll be reviewing the rest of the LTP later today in our Live Member Chat Room.  It should be a great day to spend money improving our positions because I don’t see why FDX having 1.3% less revenue should make IMAX any cheaper and we’ll get a very nice view of panic lines for the indexes as we continue to sell off ahead of the Fed (next Wednesday):

SPX Sept 16 2022

As long as 3,840 holds (post Fed) then we’re still improving over where we were in June.  At 4,320 we cashed out half our positions because the market was way ahead of where it should be – now it’s where it should be – there’s really nothing to worry about, not even FDX.  

And no, we’re not going to bounce back to the highs we never should have been at – not until the Fundamentals catch up and that could take years.  THIS is the range we belong in so stop being shocked when we’re in it.  We’ve reviewed 6 of our 7 portfolios this week and, for the most part – we’re happy with our targets and haven’t found the need to adjust – despite the very bad week the market has had.  

The LTP is sitting on $1.2M in cash, 63% of the portfolio, so we’re looking for ways to deploy it as our Short-Term Portfolio (STP) has about $5M in downside protection.  I’m a lot more concerned about missing out on buying opportunities than I am about getting burned by a big move lower.  

To some extent, that’s up to Powell and the Fed next week but I smell peace in Ukraine soon (before Putin is totally embarrassed) as Xi Jinping just met with Putin and it did not go well for the Russian leader.  Thanks to a last-minute save on the Rail strike, the supply chains continue to improve and, as to the Fed – 0.75% or 1% – who cares?  What matters is when they stop and anything under 6% is a gift and the plan still seems to be 4% and this meeting will put us at 3% or 3.25% – either way there are more hikes ahead – so learn to live with them.

CPI To Elevate Dot Plot Debate: 3.9% Or 4.1% End-2022? - Bonds & Currency  News | Market News

Again, 4-6% interest rates are NORMAL, not a punishment!   Powell hasn’t gone insane – 0.25% WAS insane!  Get a grip people.  The free money train ride is over and now Americans and our Corporate Masters have to figure out how to work and exploit workers in the real World – until they can come up with another crisis to throw money at, of course…

Have a great weekend, 

– Phil

 

 

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phil, as a short term trade, what about buying now in the premarket? do you think it could stay down 22% in one day?

i’m sorry, i forgot to say i meant FDX.

ok, nevermind. been looking at the chart, and it looks like they just shaved off the covid premium down to 2019 levels. guess it could be stuck down here or lower for the day. it’s awfully tempting, though. for a short term scalp.

Good Morning.

FDX seems silly cheap now. And I am still not convinced about a worldwide recession to the extent they are claiming. Seems more likely they just over-projected.

Phil/NG – Doesn’t seem likely Europe will just go back to relying on Russia even after a withdrawal from Ukraine. LNG is here to stay also. Hurricane season coming up and lower than average inventories for a projected colder winter. Seems likely NG will continue to be volatile. Any thoughts? Thanks.

Not sure how many know this, but FDX drivers work as contractors and they’ve had issues with the contractors due to rising costs. Every FDX and delivery person you see isnt an employee of FDX.
This relates to Fedex ground. FDX has renegotiated contracts over the past few months. Probably took a bite out of EPS.

Yes sir, FDX had the upper hand when they could demand unreasonably high prices because of unsustainable high demand, I think the macro changed, but mostly for FDX.

Hi Phil
How would you reccomend to close/adjust this position?
all postions are gen 23
bouth 10 sqqq 35 call at 7.5
sold 10 sqqq 65 call at 10.30
sold 5 sqqq 100 call at 6.45

was thinking of moving the sold 65 to the 75 for 1.5 and cash the 35 for 18
or cash the 35 for 18 and cover the 65 with a 50/80 2024 spread for 4.5
Can you give your advice please?

Morning!
Phil INTC
I’ve refactored my position to the 25’s 25/40 BCS for $5.0 with a few naked 25$ calls to sell against. Would you recommend selling the short term calls now or wait for a pop. I’m notoriously sucky at timing the market.

Phil,
Agree that there will be a conga line of ships carrying /ng from US to Europe for next few years. It would be crazy for Europe to rely on Putin again even if there is a ceasefire soon. What would the good trading opportunities be assuming that conga line is going to happen?

Thanks

here sticky sticky

Pretty sure you meant STP here:
At least that’s been 50% offset by gains in the LTP”