Earnings Sentiment Analysis at Scale: FedEx is Patient Zero as Supply Chain Issues Reverberate

Our readers and users may recall our post discussing the Supply Chain risk to Retail, even in a strong demand environment. Yesterday, the Supply Chain spoke in the form of the FedEx (FDX) earnings call. The headlines told a clear story: FedEx stock -12% and a lower 4Q outlook.  Not surprisingly, FedEx’s earnings call garnered a meager Amenity Score of 2 (vs 63 last quarter), both the lowest score and biggest drop in the Logistics sector this past quarter.

What Can We Learn From FedEx: Retail Supply Chain, Macro, Aerospace?

The downtick in Amenity Score and lower Q4 guidance are just the headlines, not where analysts truly differentiate themselves.  What can we learn in the details? How does that connect with data points across the ecosystem, and what are the positive and/or negative implications for other companies? By leveraging the power and scale of Amenity Viewer’s text analytics, we were able to investigate these questions in minutes.

Using Text Analytics to Uncover 5 Key Takeaways

1. Pricing continues to outpace inflation → retail margin pressure remains:

"The domestic pricing environment is competitive, but rational.  We recently announced our 2019 GRI of 4.9% for FedEx Ground and Express shipments and 5.9% for FedEx Freight."

"I don’t want to particularly comment on the pricing decisions of other carriers.I will just reiterate the broad point that we have made in previous conference calls that the cost of Last Mile delivery will continue to go up in the years to come."

2. U.S. demand was not the problem. Instead, Europe and China shoulder the blame:

"We are seeing significant volume growth across our U.S. domestic parcel business."

"In the U.S., growth remains solid, driven by robust consumer spending and favorable conditions in the industrial sector."

"Our international business, especially in Europe, weakened significantly since we last talked with you during our earnings call in September. In addition, China’s economy has weakened due in part to trade disputes."

3. Have other companies mentioned Eurozone weakness recently?

We used the Query Insights feature of Amenity Viewer to run our NLP model and identify mentions of softness in Europe across earnings calls globally.  The highest number of negative mentions were from Sappi (SPPJY), a South African pulp and paper products company that was certainly not on my radar, and probably not on the radar of most U.S. investors.  FedEx closed above $227 on November 15, the date of the Sappi call, and is now 29%lower.

  • Sappi Limited (SPPJY):

4. What does this mean for other Logistics companies?

We note on its last earnings call (November 1), XPO Logistics saw a drop in its Amenity Score to 28 from 59. But after digging deeper, we see the company was still positive on Europe, while leaving the trap door open for trade war impact:

  • XPO Logistics (11/1):

"In Europe, we had a solid performance from our transport operations. Revenue was $703 million, up 12%."

"The truck market is tight across Europe, and our freight optimizer technology is helping us gain share by improving our access to capacity while lowering SG&A."

"We look at expedite internally, because expedite is usually the canary in the coalmine, and revenue is up 20% year-over-year"

"...if you look at Europe supply chain, organic revenue is up 11.5%.  And despite the severe labor shortage in the Netherlands, that’s our fastest growing supply-chain market in Europe. But the U.K., France, Italy, they’re growing fast too."

"On the con side, we don’t know how the China trade war, geopolitical situation is going to play out."

5. Are there any other shoes to drop? Query Insights shed more light.

FedEx spent much time on the call discussing cost actions they would take to mitigate the international weakness. One of those items was CapEx:

"It’s going to be a little bit tougher this year. We probably will slow some things down to see what happens."

CapEx for a Logistics company like FedEx is revenue for aircraft OEMs like Boeing and Airbus.  Again, we went to Query Insights to see if other aircraft operators are discussing reducing capacity.

Here we highlight Query Insights results where sentiment around Capacity and Financial key drivers shows that Boeing and Airbus may not be alone, especially in Europe:

  • Flybe Group (FLYB):

  • WestJet Airlines (WJAFF):

  • American Airlines (AAL):

  • Lufthansa (DLAKY):

Join the Amenity Viewer Beta Program today to analyze earnings call transcriptions and enable you to spot outliers, identify critical insights, and understand key drivers.

This communication does not represent investment advice. Transcript text provided by S&P Global Market Intelligence.

Copyright ©2019. All rights reserved.

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