If FedEx Is a Bellwether, the Weather Is Fine

Mark Reeth: Let's start with earnings from FedEx. FedEx, I think we all know that company by now. One of the biggest shippers, I suppose, in the world. It's usually considered a bellwether too of how the economy is doing. If that's the case, then seems like things are going pretty well. Things did pretty well at FedEx this quarter. Tell me a little bit about the earnings from FedEx.

Taylor Muckerman: They beat on the bottom line, not by a huge margin, but expectations were pretty decent. They came in just above that and raised guidance slightly. Although, that does have to do with the acquisition of TNT Express in Europe, so not just forecasting better business for the rest of the year, but just changing a little bit to their forecast of that business, which they do say that that's moving along very well, going to be nicely accretive to earnings next year and FY18. Overall, just boosted by, I think, online sales continue to grow, and obviously, if you're buying online, it's being shipped to you, so FedEx is taking a big portion of that business.

Reeth: It makes sense. A lot of factors outside of FedEx's control seem to be working in FedEx's favor. Like you said, e-commerce growth is leading to shipment growth, and a lot of those shipments go through FedEx. You've also got lower fuel costs these days, makes it cheaper for them to ship stuff. Even within FedEx, like you said, they didn't just buy TNT Express I should say.

Muckerman: Yeah, it's been a little while.

Reeth: It's been a little while. It's about time we started seeing those earnings tap into FedEx's earnings. A lot of the numbers from FedEx this quarter, even without TNT Express numbers, were pretty strong. I suppose all that being said, what's a shareholder of FedEx to do today. If I am a FedEx holder, am I buying more? Am I staying put? Am I worried about the holidays? Am I positive about the holidays? What's your take on FedEx going forward?

Muckerman: If I was shareholder, I would definitely be confident holding shares. I don't know if would be ready to add to them. This stock looks pretty reasonably valued based on the growth that it has seen and growth that they're projecting, but you never know. The surge in e-commerce could continue. Although, Amazon is trying to handle a little bit more of its shipping on its own. I do wonder about that. Then maybe a couple of years down the road, you're looking at drone delivery, so what does that do to FedEx if they're not a big player in that market?

I'm confident to hold shares, but I'm nervous on valuation right now to add some. They do have pricing power. They're raising prices almost across the board by three to four, almost five percent in some cases. You like to see businesses that are comfortable doing that, especially during good times. I'm confident holding shares if I was a shareholder, but like I said, buying more, might wait a little bit on that.

Reeth: I had a note in my notes for this show about drone shipments, and I was thinking, "Nah, it really doesn't matter to FedEx or FedEx shareholders right now." Do you really see drones taking over FedEx and UPS's business here? This is an honest question. I don't know if UPS or FedEx have any skin in the game of the drone market. Do you know anything about that? Are you worried, honestly, about drones taking over market share from FedEx?

Muckerman: You look at where they make the bulk of their money in terms of price per package, and that's international, long distance, so no. In that instance, drones, I think, are light years away from taking over long distance package delivery. Intercity delivery, express, close, regional deliveries, within maybe twenty-five, thirty-five miles, I could see that being impacted, but again, small portion of the business. These are logistic monsters, we'll just call them monsters. I have a feeling that, behind the scenes, they're either working on something, or they have enough to cash to then go out and probably partner or buy a drone company at that point. I certainly don't think, based on just headlines, that they're anywhere nearly as far along as Amazon, I would say, in terms of drone delivery progress.

Reeth: Watch the skies for FedEx drones coming to a city near you.