FedEx Raises Profit Outlook on Network Overhaul

0:00Scarlet Fu:So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now, a global workforce of 300 ,000 can use AI to fill their HR questions, resolving 94 % of common questions. Not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business. IBM. You need to make a huge presentation in an hour. Adobe Acrobat uses AI to take all your documents and generate a presentation with a single click.

0:39Scarlet Fu:Build slides quickly and streamline the process. Need a last-minute pitch deck? Do that with Acrobat. Need to level up your presentation design? Do that with Acrobat. You have 30-plus documents that need to be simplified into a proposal. Do that. Do that. Do that with Acrobat. Learn more at adobe.com slash do that with Acrobat.

1:28Scarlet Fu:derivatives, which could increase risks and volatility. Monthly income is not guaranteed. Prepare by BlackRock Investments, LLC. Bloomberg Audio Studios, podcasts, radio, news. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. FedEx coming out with results. It seen as economic bellwether, even as it clearly has its own issues to work through, namely this overhaul of its businesses. Lee Kloskow is our senior transport logistics and shipping analyst here at Bloomberg Intelligence.

2:10Scarlet Fu:And Lee, a good report here from FedEx, whose shares are right now up about 2%, a forecast that came in better than most people expected, including the range that it offered. Yeah, it definitely was a nice print for their third quarter, which includes their peak season in December, which shows us that they're really executing on their plan. The beat was really driven by their express business, so their parcel business. Their freight business, which is their less than truckload business, continues to struggle. That's really not a company-specific thing. That's an industry thing. The LTL market has been pretty weak over the last year, and we expect that weakness to continue.

2:49I think people were encouraged about the fact that they raised their full year guidance. They did put out a$25 EPS target for 2029 when they had their analyst day a couple months ago. We've written over the last month that we think that might be conservative if the company continues to execute on its restructuring plan and assuming that the economy doesn't crater from here, a la a recession. you know, I think that, you know, its numbers can be can be made. Lee, I know it looks that some of my banker buddies got to this company at some point because they are going to spin off their freight unit, I guess, sometime in June.

3:33What are you looking for there? What's the what's what's the story there, do you think? Yeah, so I think they're following the footsteps of UPS. UPS also had a less than truckload business. They spun out that they sold, excuse me, to TFI, a Canadian company. And, you know, I think what these parcel carriers want to do is they want to focus on, you know, that they're parcel carriers and not some of these ancillary businesses. You know, I think this will really sharpen FedEx's focus. The LTL business or the FedEx's LTL business is a great business. It's the largest less than truckload carrier in North America.

4:08It'll be an interesting spinoff. I mean, we'll see where valuations are by the time they spin it off in June. You know, like I mentioned, tonnage has been kind of depressed. So obviously, maybe they're not getting the most that they possibly can because of the timing. But I think it is a good thing for them to do. And not only doing that, they're doing things that was unheard of maybe three, five years ago. They're combining their air and ground networks, and they're doing things within their businesses to really drive overall productivity. You layer on top of that technology investments to enhance productivity.

4:46You know, this could be a company that can, you know, generate earnings north of that$25 number that they put out for 2029.

4:54Scarlet Fu:Lee, final question to you. We have about 30 seconds left. We know FedEx has sued the federal government for refunds on tariffs. Any update, any progress on that front? Is this a meaningful number? Yeah, honestly, I don't know much about that. They really didn't talk that much about it on the earnings call, but it probably would be a pass through that they give back to their customers. So it's not really going to impact their bottom line. And if it does, it'll probably be, you know, not meaningful. Stay with us. More from Bloomberg Intelligence coming up after this. Doing taxes the old way meant handing everything off and just hoping things were moving.

5:31But now you can feel confident your taxes are being handled right with Intuit TurboTax. Now you match with a TurboTax full service expert. Just upload your documents right in the app and boom, they take it from there. Start to finish, you've got a dedicated expert working your return. They check every deduction and credit to help you get the best possible outcome, so you can feel confident you're getting every dollar you deserve. And now you're not guessing what's happening, you're seeing it happen. TurboTax gives you real-time updates on your expert's progress while you go about your day. Run errands, grab a coffee, live your life.

6:07You're always in the loop. And if a question pops up, you get unlimited expert help at no extra cost, even on nights and weekends during tax season. Taxes are finally transparent, easier, and handled. Visit TurboTax.com. Only available with TurboTax full-service experts. Real-time updates only in iOS mobile app. The news doesn't stop on the weekends.

6:29Scarlet Fu:Context changes constantly. And now Bloomberg is the place to stay on top of it all. Hi, I'm David Gurra. Join us every Saturday and Sunday for the new Bloomberg This Weekend. I'm Christina Ruffini. will bring you the latest headlines, in-depth analysis, and big interviews. All the stories that hit home on your days off. And I'm Lisa Mateo. Watch and listen to Bloomberg this weekend for thoughtful, enlightening conversations about business, lifestyle, people, and culture. On Saturday mornings, we put the past week's events into context, examining what happened in the markets and the world. Then on Sundays, we speak with journalists, columnists, and key political figures to prepare you for the week ahead.

7:07Scarlet Fu:Join us as soon as you wake up and bring us with you wherever your weekend plans take you. Watch us on Bloomberg Television, listen on Bloomberg Radio, stream the show live on the Bloomberg Business app, or listen to the podcast. That's Bloomberg this weekend, Saturdays and Sundays starting at 7 a.m. Eastern. Make us part of your weekend routine on Bloomberg Television, radio, and wherever you get your podcasts.

7:35Scarlet Fu:You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Well, a potential mega M &A trade reported today. Potential Unilever is in talks to sell its food business to McCormick in what would be the biggest overhaul of the company since it was founded almost a century ago. We're talking this business could be worth about 33 billion U.S. dollars. So that would be a sizable trade there for sure. Let's get down into the details here.

8:14We can do that with Diana Gomes. She is a senior equity research analyst at Bloomberg Intelligence. She's based in London. Diana, this would be a big, big move for Unilever. What's the strategy here?

8:28Scarlet Fu:Yes, thank you. So the strategy for Unilever would be really to simplify and refocus more on the higher growth premium skincare well-being beauty portfolio, which is what the company is trying to do in order to reach about two thirds of sales in the midterm. So it is not surprising that Unilever is considering a split. But I believe the questions are more how that will be structured. So is this a move? I mean, I see the stocks up just fractionally today. Is this something that was expected by the street? Is this something the street would support? Is this a valuation that seems reasonable? So the valuation we came up with, we calculated a potential nine times EV to EBITDA multiple on a potential 3.2 billion euros of EBITDA in 2026 for the foods business as part of Unilever, which would be aligned with packaged food multiples and slightly below Unilever's multiple at the moment, which accounts for the fact that FUDS has been a slower growth segment for Unilever, but it's still margin accretive.

9:49Scarlet Fu:It's cash accretive. So, a quick sale at a non-favorable value would not be something that I see Unilever working for. But in prior days, we have seen more chatter in the market about Unilever potentially speeding up some considerations for a split, a spinoff, a sale. There are many hypotheses being put out there. So it is not coming as a complete surprise. I believe the details are quite thin at the moment. So it's difficult to say. So I think we've seen a lot in the consumer products space just over the last several weeks, several months. a lot of companies re-examining kind of their portfolio of brands because there's been a lot of competition from private label.

10:44There's been a lot of inflation out there that's been pinching the consumer. It seems like a lot of these companies are re-examining their portfolios. Should we expect more of this going forward?

10:55Scarlet Fu:Yes, definitely. So that's a trend that we see continuing through the year. And it is also possible that the current uncertain environment from the geopolitics risk potential boost to inflation as well, which would further squeeze consumers, is prompting strategic thoughts as well. And that's the backdrop under which this comes. So not completely surprised, given that foods would potentially be the segment more vulnerable in the lever's portfolio. But companies have been trying to simplify and get more focus so that the investment in their premium innovation allows them to better differentiate themselves from private label or affordable options in the market, sometimes from smaller players.

12:00So, Diana, who's typically investing in these big consumer products, companies like Procter & Gamble, Unilever? Because I see, you know, kind of their stock prices are kind of flattish over time, not a lot of movement. They do have nice dividend yields, 3%, 4%, 5%. Are these investors that in their portfolio, they just want these stocks to represent stability?

12:21Scarlet Fu:That is one of the key elements for that staples that have been known for, for that stability on income. and some attractive dividend yields as well. So we see further buybacks and dividend growth still possible into the year. But obviously with the potential for volume growth to not pick up as much as was initially expected pre the war, it does raise some questions there. Stay with us. More from Bloomberg Intelligence coming up after this. Doing taxes the old way meant handing everything off and just hoping things were moving. But now you can feel confident your taxes are being handled right with Intuit TurboTax.

13:09Now you match with a TurboTax full-service expert. Just upload your documents right in the app, and boom, they take it from there. Start to finish, you've got a dedicated expert working your return. They check every deduction and credit to help you get the best possible outcome, so you can feel confident you're getting every dollar you deserve. And now you're not guessing what's happening. You're seeing it happen. TurboTax gives you real-time updates on your experts' progress while you go about your day. Run errands? Grab a coffee? Live your life? You're always in the loop. And if a question pops up, you get unlimited expert help at no extra cost, even on nights and weekends during tax season.

13:47Taxes are finally transparent, easier, and handled. Visit TurboTax.com. Only available with TurboTax full-service experts. Real-time updates only in iOS mobile app.

13:59Scarlet Fu:You can get the news whenever you want it with Bloomberg News Now. I'm Amy Morris. And I'm Karen Moscow, here to tell you about our new on-demand news report, delivered right to your podcast feed. Bloomberg News Now is a short five-minute audio report on the day's top stories. Episodes are published throughout the day, with the latest information and data to keep you informed. Yes, there are other products like this from a variety of news organizations. but they usually rerun their radio newscasts throughout the day. That's not what we do. We create customized episodes that can only be heard on Bloomberg News Now.

14:36Scarlet Fu:And we don't wait an hour to publish breaking news. When news breaks, we'll have an episode up in your podcast feed within minutes. So you're always getting the latest stories and developments. Get the reporting and the context from Bloomberg's 3 ,000 journalists and analysts. We're all over the world. Listen to the latest from Bloomberg News Now on Apple, Spotify or anywhere you listen. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube.

15:13Let's go over to the consumer side. When you think about where consumers spend money, well, for enjoyment and entertainment and all that kind of stuff, they can go take a cruise, they can go to a casino, go to a theme park, all that kind of stuff. But if the consumer may face some additional challenges going forward, what does it mean for those businesses? What does it mean for those businesses' credits out there? Jody Lorre, she's a Bloomberg Intelligence Credit Analyst. Jodi, how do you think about some of the industries you follow? Again, kind of the cruise industry, the gaming industry, the theme park business, hotels, all that kind of stuff.

15:49What's your view of the consumer and what are your companies telling you? So I think, Paul, there's a couple of things to tackle here. First of all, of course, there's the pressure from the Iran war, which at the end of the day, I think there's more of an echo effect event. And it's more just adding to some of the pressures that the consumer is already feeling. We've been talking about the K-shaped economy. We've been seeing some of the effects of the K-shaped economy in hotels, in theme parks, in cruise lines, in gaming. But we haven't necessarily seen a broader scale effect of this inflation pressure on the consumer when it comes to higher income consumers.

16:27And so I think that's where you're going to start seeing a little bit more of that creep in and that pullback by the consumer. But I think at the end of the day, when you look at the companies, a lot of them are really well positioned. It's only the lowest rated companies that we are concerned about. The ones that are operating on a tight sort of cushion at the moment, such as Six Flags, such as Hertz, the names that really are trying to get their balance sheets in order and trying to address fundamental issues at their companies that we're concerned about at this moment. Right.

16:58Scarlet Fu:Especially when you look at the fact that traders are now betting on the possibility of a rate hike as well. Not only have they priced out rate cuts for the rest of this year, they're now looking at possibly the Fed needing to increase interest rates because of rising inflation. A rate hike would really be bad news for a lot of these weak borrowers with a lot of debt coming up, wouldn't it? It would. Absolutely, Scarlett. And I think I think the key here, though, is that a lot of the companies have been proactive in terms of deleveraging. And so for 2026, we actually don't have that much debt outstanding for a lot of the companies that we cover.

17:32It's really as you get in 2027, 2028, when it's that prolonged sort of view, that's when you start feeling the pressure. If this is a sort of, you know, one year blip or so, I don't think it's really going to affect them. I mean, we did an analysis on a company like Carnival, for example, which, you know, they've been working their way towards investment grade ratings. They obviously are feeling the strain of something like Iran, and it's going to possibly affect booking levels for a lot of their consumers. But at the end of the day, for someone like Carnival, they've been proactive. effectively deleveraging, which is certainly a positive.

18:06And when we've looked at similar times in the past, it really hasn't affected EBITDA margins that much. Net income might be a different story, but EBITDA margins not that much, which is a little surprising for us. I think where we're sort of hesitant to feel really comfortable for a company that's unhedged on their fuel exposure is more in that secondary and tertiary effects related to something like this massive event and also the consumer feeling pressure. By that I mean as consumers, if they're not spending on the scuba diving, if they're not spending on the random excursions the same way, you're not going to have that gravy of cash flow that a lot of these companies feel.

18:45It's the first weekend of March Madness, which makes me think about sportsbooks. And my favorite sportsbook in Vegas is at Caesars Palace. It is just awesome. They take care of you there. And I noticed, Jody, that Caesars is, I guess there's some reports that maybe they were going to be taken private by Tillman Fertitta. What does that mean for its bonds? What does that mean for bonds of other kind of leisure companies out there? Well, Paul, we've been a little bit concerned about some of our companies just because we're towards that tail end of a really good momentum of the past few years post-COVID.

19:20And so for someone like Caesars, while they do have change of control provision, which what that is, is that's a protection measure for anybody who owns their bonds to put back the bonds at 101 % of par. While those bonds do have that, there's reports by Wall Street Journal and others that indicate that Caesars may have found loopholes around their relationship with Vici properties, which is the one that owns about 50 % of their properties. They have a sale lease back with Vici. So not to get into too much detail, But if they're looking at ways to skirt conversations with key counterparties, I'm a little bit concerned when it comes to creditors, particularly when you look at where the bonds are trading and they're trading so much below par.

20:04I think that's a sign that maybe perhaps whatever deal might be forming is not necessarily going to be creditor friendly. Then if you think about Caesars in general, the long history, legacy Caesars, what happened with their LBO, what happened with their restructuring. Now we have El Dorado as the management team. They're the ones who bought Caesars and took on the Caesars name. At the end of the day, though, I think a lot of investors have a hard time getting over a name that burned them in the past, feeling comfortable with this discussion going forward. We have a lot of companies within our sectors.

20:38We actually just published something yesterday on it. looking at the risk related to activist investors for a lot of our companies and what that could mean for these credits. Stay with us. More from Bloomberg Intelligence coming up after this. Doing taxes the old way meant handing everything off and just hoping things were moving. But now you can feel confident your taxes are being handled right with Intuit TurboTax. Now you match with a TurboTax full service expert. Just upload your documents right in the app and boom, they take it from there. Start to finish, you've got a dedicated expert working your return.

21:16They check every deduction and credit to help you get the best possible outcome so you can feel confident you're getting every dollar you deserve. And now you're not guessing what's happening, you're seeing it happen. TurboTax gives you real-time updates on your expert's progress while you go about your day. Run errands, grab a coffee, live your life. You're always in the loop. And if a question pops up, you get unlimited expert help at no extra cost, even on nights and weekends during tax season. Taxes are finally transparent, easier, and handled. Visit TurboTax.com. Only available with TurboTax full-service experts.

21:51Real-time updates only in iOS mobile app.

21:54Scarlet Fu:I'm Francine Lacroix, an award-winning journalist, and I've got a new podcast, Leaders with Francine Lacroix from Bloomberg Podcasts. I've interviewed everyone from heads of state to fashion icons about the news of the moment. But I've always been curious, who are these people as leaders? I don't think there's one right way to be a leader. Make decisions. A poor decision is always better than no decision. Listen to new episodes every other Monday. Follow Leaders with Francine Lacroix wherever you get your podcasts.

22:36Scarlet Fu:you get your podcasts or watch us live on YouTube. The business of sports. Nobody does it better than our next guest, Randall Williams, U.S. sports business reporter for Bloomberg News. He doesn't mail it in from home like the rest of these folks. He's live in the Bloomberg Interactive Brokers Studio, and we appreciate that. Randall, I'm so glad you're here because to me, I've been following closely this WNBA collective bargaining agreement because what I think we've all noticed over the last several years is just the explosive growth of women's national basketball, women's sports in general, but certainly the WNBA.

23:06And boy, I did not think the economics for them reflected that. Does it now with this new agreement? I remember when Caitlin Clark was drafted, I think all of us, Bloomberg included, ran the story that she was going to be making either it was$76 ,000 or$78 ,000. And you think about the growth that she brought to the league as well as many, many others. I mean, the league was growing before she arrived as well. And then she and her rookie class, Angel Reese and Cameron Brink and so many more, served as a title wave. And so their salaries didn't reflect that, but they will soon.