Earnings: FedEx stock rises on stronger guidance, CarMax tops estimates

Yahoo Finance Live anchors discuss quarterly earnings for FedEx and CarMax.

Video transcript

JULIE HYMAN: We've got the opening bell coming up in a few. Ahead of that, here are some movers. FedEx is one of them. The shares up 3%. Earnings coming in, in line with estimates. Revenue a little bit light of estimates. But the company coming out with some things that investors are paying attention to here. First of all, the earnings forecast for the full year is above estimates, 22.50 to 24.50. That's an increase from what the company had been predicting before.

And they've got a brand spanking new CEO after Fred Smith, long time leader of the company, stepped down as of June 1st, and Raj Subramaniam took over at that point. And he's already faced an activist campaign. And the company's been making some changes to face that. On the one hand, a declining volume of packages for FedEx and for everybody, right? On the other hand, an increase in rates and an improvement in some staffing issues. So those are the sort of dynamics at work here.

BRAD SMITH: Yeah, and the improvements on staffing, they're seeing some stabilization in the wages that they're paying as of right now. The company called that out in their most recent earnings call that took place yesterday evening. But then additionally, this is a great company to look at if you want to hit on a few different things.

Number one, the supply chain, and really, where this company can spell out exactly where some of those disruptions may go on for an extended period of time or where they're starting to be alleviated. They anticipate the supply chain disruptions are going to take place throughout the rest of this fiscal year for 2023. And so keep a close eye on that.

It's also a great barometer for where consumers are still spending because of the volume and the packages that they're seeing there. And so this is a company that really gives us some insight into what businesses are going through on the supply chain front, as well as the mindset and the confidence, perhaps, of the consumers as well.

JULIE HYMAN: Yeah, and on the volume front, just a couple of specifics here, the average number of packages handled every day fell to 5.8 million from 6.5 million a year earlier. So that's a considerable drop. On the flip side, we saw average revenue per package, $11.41. $10.31 was a year earlier. So again, decrease in volume, increase in pricing here. The company has improved its on-time packaging service, so that's helped as well.

Like everybody, it was hurt to some extent by the shutdown in China and the effect that that had on both demand and getting packages around where they needed to be. So, again, a lot of interesting dynamics at work. The company is having an investor day next week.

And so, again, this will be Subramaniam's first time to speak out to investors, to put his stamp on the company at the same time that he's under that activist pressure. So it's going to be a really interesting first test for him, I think. These numbers seem to be encouraging early sign for investors, judging from the stock reaction that we're seeing.

BRAD SMITH: He can say I'm real. I have legs. I'm not in the Metaverse, just out there, willy nilly. I think it's also interesting that they say they expect more consumers to return to stores. And the reason why I point that out is because we've talked about the disruption that a lot of direct-to-consumer companies have been able to put into the market and really driven on the logistics back of companies like FedEx as well, and that reliability that they've been able to offer.

But if you see more of those customers as of right now returning into stores, as FedEx is predicting here, they're going to also expect some pressure on those B2C volumes and that individual consumers and perhaps even on the DTC side as well. And so that's going to be interesting exactly where the mindset of the consumer is, where they want to shop specifically, too.

JULIE HYMAN: Yeah, and we know that a lot of what they're spending is on services. Torsten earlier talking about everybody wants to travel, but people are not buying as much stuff, although maybe they're still buying cars.

BRAD SMITH: Speaking of travel, yes, and cars and those used car purchases, CarMax tops estimates in its latest quarter. However, the company is citing a number of macroeconomic factors weighing on its first quarter unit sales performance here. There, you're taking a look at the actuals versus the estimates. They actually beat on both the top and bottom lines. Revenue coming in at about $9.31 billion versus the roughly $9 billion that was expected there. EPS also beat by about, what, $0.05 there as well.

But for used car sales, this is also a critical time, too. And it was actually pointed out, I believe, by Kelley Blue Book in that this is a time of the year where usually the amount of people that would have used an IRS refund check to actually finance a used car purchase or any type of car purchase, the IRS is extremely backed up at this point in time in getting those refunds out to people. So that's something to keep an eye on going forward from this point, too.

JULIE HYMAN: Yeah, maybe there'll be sort of a delayed pickup in car growth. Who knows? When you look at the shares here, that a little changed. There's a little bit of a disconnect, right, between what we saw from the numbers and what we are seeing from the shares, because the numbers largely were better than estimated, right?

The commentary, though, perhaps was a little bit cautious, if you will, with the CEO saying in the statement, a number of macroeconomic factors weighed on our first unit sales performance, lapping of stimulus benefits. I don't think they mention the IRS thing, at least not in the statement. Inflationary pressures, including challenges to vehicle affordability and waning consumer confidence. So definitely striking a cautious tone, even as the numbers overall look like they beat estimates.

BRAD SMITH: And at a time where used car prices are almost rivaling some new car prices, even, at this point. And so for those retail used unit sales, even though that they've declined 11% to 240,950 vehicles, I think it's on the pricing right now, too, that consumers are still seeing a lot of sticker shock when they go to buy a used car.

And that is something that could have a much more longer ranging impact. If you see the price of these used cars stay high over an extended period of time because there is low inventory, then some consumers may say, all right, well, do I just wait for a new vehicle and put a deposit in now?

JULIE HYMAN: I don't know. One more quick note on CarMax-- the provision for loan losses, it had a negative impact of $57.8 million in this most recent quarter. So that put some pressure on profit in its financing business and also raises questions about not just CarMax, but other auto companies that have a financing arm and just loans, more broadly, and what we're going to see from fintechs, from big banks in terms of rising rate environment in a perhaps slowing economic environment. What are we going to see in terms of loan losses from some of these companies? And what effect is that going to have? So it should be very interesting to watch going forward.

Now, speaking of higher rates and what we've been seeing in terms of the overall market impact, we're looking at a higher equity open this morning. We've seen a pullback in yields, as well as Mike Schumacher of Wells Fargo, who we talked to yesterday, said it was weird. It's a strange environment where you have the Fed talking about raising rates, and yet you have a significant pullback in yields at the same time. So that's a conundrum that people in fixed income are really trying to wrap their heads around.