When FedEx Corp. released its most recent earnings report, on March 19, the sharks who ceaselessly circle Wall Street were quick to shred the global delivery and logistics firm for generating earnings per share and revenue figures that fell below expectations.
Headlines for news stories on the earnings release were markedly similar in their downbeat tone; to wit here are but a few: “FedEx Stock Is Tanking After Earnings and Guidance Fall Short of Lowered Expectations” (Barron’s); “Changing package, freight mix rattles FedEx Express” (Journal of Commerce); “FedEx Earnings Miss, Guidance Cut Again…” (Investor’s Business Daily).
You get the idea. Nothing in there to entice a short-term investor. In a news release, founder and CEO Fred Smith admitted as much, stating that FedEx’s latest quarterly results were “below our expectations.”
However, he stressed that the company is focused on the long haul: “Our investments in innovation, network infrastructure and automation will increase our competitiveness and drive long-term earnings growth. FedEx built and operates the preeminent global parcel and logistics network, and we have a lengthy track record of success.”
Smith is in good company as a high-flying chief of a world-beater operation playing up the inherent value of long-term success vs. short-term gains. As legendary General Electric boss Jack Welch reportedly once told the Financial Times, "On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy... your main constituencies are your employees, your customers and your products.”
With that in mind, it should be no surprise that valuable insight about how FedEx sees the marketplace and reacts to it will not be found in the stark numbers of an earnings report. Rather, to glean such gems, you must to dig into details dished up by company execs during conference calls for analysts that accompany each release.
Top shelf among these are the remarks made during the latest call by FedEx President and COO Raj Subramaniam on how the company sees the burgeoning role of e-commerce— including the hot topic of last-mile logistics— shaping the marketplace for its services.
To begin with, Subramaniam noted that “there continues to be significant media and investor interest on the potential for Amazon to disrupt the transportation industry. We have been clear that this is not a threat to our business because Amazon represents less than 1.3% of our total revenue, which is substantially lower than what our largest competitor carries, nor is Amazon a threat to our future growth.”
He then shared “some additional facts about the market we play in,” starting with pegging the size of the U.S. domestic parcel market at roughly 15 million packages per day with the global market for international parcel shipments amounting to another 10 million packages per day. “We carry around 14.5 million packages per day today. Even if the e-commerce market did not grow one additional package, there's still substantial growth in the industrial sector of the market where we are extremely well-positioned to gain share due to our unmatched network and global portfolio.”
Yet he then described e-commerce as “a significant additional opportunity for growth. We believe we are able to add to our existing expertise and provide a market leading value proposition here as well. We continue to invest and enhance our capabilities.”
Pointing out that FedEx has already added such e-commerce services as Extra Hours, FedEx Onsite, FedEx Delivery Manager, and its enhanced Return Solutions, Subramaniam said, “We are well-positioned to provide the best service at the appropriate price point, leveraging our current capabilities and targeted additional investments.”
But the most fascinating point he made was about what “the last mile” really means. “Now, there's an intense media focus on the quote unquote, last mile, but very few people think about the first few thousand miles,” Subramaniam remarked.
“When you see a FedEx truck on the road, it not only is carrying those local ‘last mile’ shipments, but also the other shipments that are originated from all parts of the globe, creating density for Last Mile delivery and higher revenue per stop,” he went on. “This is an inherent advantage of players who have a global network in place. Any new entrant in this space will not have this benefit and also not have any particular advantage on the input costs.”
After discussing how FedEx’s core business is segmented by the size of its business customers, Subramaniam wrapped up the topic by stating that the company is “very well placed to take share in the rapidly growing e-commerce segments.”
And why does that matter? Because he said that in the U.S. alone, FedEx expects the parcel market to “double in size to more than 100 million packages per day by 2026. When you view the unprecedented growth opportunity in our industry in the years ahead, and a very small number of providers that will be able to address this opportunity, it becomes clear why we are optimistic about growth over the next few years.”
Wall Street sharks won’t bite at that far-out outlook. But if you’re looking at whether you should be focusing on e-commerce — including the last mile part of it— then these words from a major player in the game could be substantial food for thought.