Logistics and Transportation – Fountainheadinvesting

Revenue missed by about 2% ($440Mn miss on $21.8Bn revenue). Revenue dropped 1.4% YoY, indicating that economically sensitive cyclicals are still having a hard time. FedEx too, expects just 1.8% growth for the second quarter. UPS’ earnings miss was 10% – that hurt the stock more, its down 10% premarket to $130.

For the past 3-4 weeks there has been a steady drum beat to get out of expensive tech to companies that could benefit from lower interest rates and cheaper valuations.

The 10% drop in UPS due to the big earnings miss and the lack of growth underscores how difficult it is to find and invest in the right cyclical. Avoid the value traps and be very discerning in finding the right company or index.

Federal Express FDX $241 – Buy on declines, cyclical, improving margins, next three years expect at least 10-12% earnings growth, very reasonably priced at 14x earnings.

Yes, absolutely right on the patience part, this one gives medium returns, shouldn’t expect more than 10-12% a year +2% dividend yield, and with the 18% rise in the past year, some of it is already in the price. Revenue growth should improve 4-5% after a flat 2024. (Year ends in May)

Good news is there have been cost cutting moves, and emphasis on efficiency – the express business profits tend to be low, and it’s the ground services that’s really keeping the company profitable. Overall it makes only 7-8% operating profit compared to UPS’ 10-11%, but this will improve with execution of the “DRIVE” program which is its effort to improve efficiency. If they execute this well, there could be further upsides.