While conscious of the gravity of the impeachment of a President of the United States, I can't help but marvel over something that happened last night. FedEx (FDX) reported and the company had a substantial profit. It wasn't enough to meet the estimates by any means: $2.51 versus the $2.78 that the analysts were looking for. And it slashed its forecast for the year: the range will now be $10.25 to $11.50 instead of $11 to $13. The company pronounced the quarter disappointing as did the analysts and investors, who unceremoniously bailed, causing the stock to drop 10% to $146 down 50 points from its high.
None of that, frankly, is amazing. To me, given how many things are going wrong, it is incredible that they are making any money at all.
Consider that the company completely misjudged the amount of business they would do on cyber Monday, 37.8 million versus an expected 33 million, a situation that is NOT a high quality problem. It's pretty darned hard to make money at all when they forecast that poorly. Consider that the company was banking on a an increase in world trade, a secular trend, that turns out to be regulated by a trade war that has actually reversed commerce, something that's precisely the opposite of what the company was prepared to happen.
Consider that the company made a huge acquisition in Europe, buying TNT for $4.8 billion back in 2015, and it is still not integrated with Brexit on the horizon, something that could rock this company's world.
Consider that not only did Amazon (AMZN) arguably, at one time, the most valued client in the world, have disputes with the company over cost of shipments, and that the online colossus actually cut them off from third party shipments a week before Christmas, the money week, stating publicly that FedEx is too slow. You could say that Amazon has gone from a large client to a vicious competitor in no time flat.
Consider that they added Saturday and Sunday delivery without seeming to think that it could blow up the budget with unforeseen costs. And consider that its fleet of planes is outmoded, that its staff of 490,000 is ridiculously bloated, and worst of all the company doesn't even think it can make cuts because it would hurt morale.
It's one of the biggest messes I have ever seen, and believe me I think I just scratched the surface of things that are going the wrong way which is why it is so unbelievable that it could make the money that it did.
What should FedEx do?
First, I would stop doing what the CFO Alan Graf did which is basically call a bottom when there is none in sight. This would not be the first bottom called during this horrendous time.
Second, I would simply shut up. I would stop giving guidance entirely. When you don't know what is happening, when you are overrun by events, you simply have to stop trying to forecast to Wall Street. You can't disappoint if you don't offer disappointing guidance.
Finally, I would take the hit: adjust the costs, take down the profitability, or the attempts to stay highly profitable and get it right for once, accept that e-commerce is growing much faster than you think and adjust to the new world. If it takes new people to do, then so be it.
FedEx is not a disgrace. The company is a gem, a fantastic group of 490,000 people trying to get it right. What is a disgrace is that the company keeps thinking it has it right. Stop the predictions, stop the sham guidance and figure it all out. Then, and only then, will things go well, and the stock reach a bottom, and become investible again.
(Amazon is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells AMZN? Learn more now.)
