Yahoo Finance Live anchors discuss stock performance for FedEx.

Video Transcript

[AUDIO LOGO]

- Yeah, let's look at why you're seeing some of this pressure here in the premarket. FedEx has been the top trending ticker on Yahoo Finance the past 18 hours and not for good reason. Shares are getting run over this morning after the logistics giant delivered a brutal profit warning for the first fiscal quarter and withdrew it's guidance for the full year. This warning is having a ripple effect on the markets and fellow transport stocks stoking fears about more economic pain ahead.

And I have lots to say on this warning here, guys. But first and foremost, let's keep in mind this. This is a management team that came out in June, projected very rosy, double-digit earnings growth at a key investor day. They were being really hit hard by an activist investor. Now here, today, they're coming out with current quarter earnings guidance $3.44 versus street estimates of 514, withdrawing their full year outlook and also voicing concern about demand trends in Asia, in Europe, and even the United States.

This was a very bad preannouncement and does not fit at all nicely with what we heard, what investors heard from this team in June. And is a complete absolute embarrassment.

- And here's what Raj Subramaniam, the CEO of FedEx is saying. Global volume is declined as macroeconomic trends, which you were leading there to a moment ago, significantly worsened in the quarter. Now, both of those internationally and in the US. He goes on to say that these efforts that they're kind of looking at right now, the performance disappointing, and they're accelerating some cost reduction efforts. That includes a reduction in flight frequencies, temporarily parking aircrafts, they're also going to close over 90 FedEx office locations.

And you think about all of these cost reduction efforts that they're going to be putting forward as well at this time, that means for the end consumer, not just the individual that's waiting for their package to get delivered and tracking it every time, refreshing it when they order something online, it's also those large business partnerships too. There's going to be a delay in some of those more massive shipments, those business to business partnerships, thus that also trickles through to the end consumer and that decreases the overall kind of value experience and the customer experience that the customer of a FedEx customer is having at the end of the day.

And so all of those compressed together really lays out the broader global picture too. And I'm not sure about how long this is going to be the case as of right now.

- Let's talk back the embarrassment maybe a little bit. I mean, listen, Fred Smith led this company for decades. He created this company. And now he's handing it over to someone else. What is a really challenging time, and maybe didn't set up--

- But he's been there, Julie.

- Maybe didn't set up the company. Yeah, but he's been there but what is he going to do? Go in and say Fred Smith, you're taking the company on a wrong strategy?

- He has spent his whole career at FedEx.

- But you see what I'm saying.

- I understand what you're saying.

- All I'm saying is the initial reception for Subramanian was relatively positive, right? And to be fair, FedEx is coming out ahead of it's scheduled earnings date to make this, kind of getting out ahead of it, and making changes to try to right the ship.

It's interesting when we talked to Amit Mehrotra earlier in the week from Deutsche Bank, he said, what Raj needs to do is take a page from Carol Tome over at UPS. She has provided the roadmap for what FedEx needs to do. Now I guess the question is, is that what FedEx is going to do?

Now, here's what they're doing in terms of some of the various initiatives. They're parking some of their aircraft, they're decreasing the number of flights they're going to do, they're going to be cutting hours for some of their employees and consolidate some of their sort of operations to try to improve productivity, they're going to cut their Sunday operations and some of their FedEx ground locations, they're going to close 90 FedEx office locations.

So they are taking-- just as we saw, for example, some of the retailers say we have this problem, here are some of the dramatic steps we're going to take. FedEx is making some initial movement in that direction, I think we can say.

- I'm glad you mentioned him to me, because I'm looking at his note right now. I just want to put a little more context behind me saying this is an absolute embarrassment. Now, this is a meet over at Deutsche Bank saying, "FedEx preannounced the weakest set of results we've seen relative to expectations in about 20 years of analyzing companies." He goes on to say, "The magnitude of the numbers in today's release was simply staggering. We simply can't explain it even after our discussions with the company this evening." So Amit hit them hard too.

- Hit them hard, but I think it still comes back to how much they were talking about investing, going into this year. And even on the strength that they had seen in some of those operations and ramping up, having new hubs, really looking at and across the board some of the new innovations that they were going to bring to that logistics environment, whether that's the autonomous delivery that's far out in the future from here on out. It's scaling back now, some of those investments.

And where do you kind of reallocate those costs or that capital within the business so that you can just navigate this period of time? And that's what a lot of these businesses are going to be looking at, is where they can reallocate some of the capital in their cash crunch that they're looking across.

- OK. So what now? I guess is the question for this company. Sozzi, I mean, you've talked to Carol Tome, who I mentioned over UPS, you've covered FedEx pretty closely.

- Well, first I would say it's how out of character this is for a company like a FedEx. This isn't a startup company that has completely missed their numbers or is over-hired like we've been hearing a lot from big tech companies, this is a FedEx. They've been around basically our entire lives. They should have a general understanding of the trends in their business and be able to forecast them.

There are people probably on that payroll throughout the organization making five times more than me that get paid a lot of money to assess economic data and project it out. And this is the bad miss. But overall, I think they are starting to take some of the steps that Carol Tome has done. And that is cut expenses, focus on things that drive higher returns. But still, Carol is and was the fresh eyes on the business. She ran Home Depot as the CFO for a long period of time, she was on that UPS board, but still, she was a fresh executive and a breath of fresh air into the company.

Raj, yes, accomplished executive but he is more of the same at the company. Some of these strategies that he has helped put into place is reflected in this earnings warning. So I would really argue these are two separate executives here in two different stories.