Earnings Call Notes FDX & ORCL Fiscal 3Q13

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

Fedex and Oracle each reported disappointing earnings in the past two days, which has some worrying about what that means for the economy.  A closer read of the earnings calls seems to suggest that both companies see transitory issues masking underlying positivity.


“in our domestic business, we’re performing actually very well.”

“Going back to the issue at hand, Q3’s performance on international revenue driven by yields was the issue. We actually had more volume.”

“the reality is that the American consumer drove international trade for a long period of time and brought Europe back after World War II and helped bring China into the current fantastic economic powerhouse it is. But policy decisions and the cost of fuel have radically changed the international trading situation. So last year, you had a reduction of international airfreight in its broadest sense…So trade has contracted relative to where it was before 2008, and the cost of fuel is such, along with the increasing cost in China, that these markets have been constrained. At the same time, you have a lot of capacity that’s come into the market. So I think the bottom line is we got a little bit ahead of our skis, and we had more capacity out there into the heavier, more cost-sensitive airfreight market”

“the issue for us isn’t that we don’t have enough volume. We have too much volume in the wrong product in the wrong network.”

“the types of things that go into the Express network, things that require time-certain, long-distance delivery, are going to continue to be a requirement for shippers. It’s just the ratio of the Express shipments to the Ground shipments. And I think what you saw in this quarter was sort of a stabilization of the Express-Ground ratio. There’s certainly e-commerce driving a lot of traffic for Ground, and some proportion of the e-commerce requires Express delivery, so that’s really what you’re seeing.”


“While our overall business remains very healthy, and we saw excellent pipeline growth, we’re not at all pleased with our revenue growth this quarter.”

“Since we’ve been adding literally thousands of new sales reps around the world, the problem was largely sales execution, especially with the new reps, as they ran out of runway in Q3. As expected, many of the pushed out deals have already closed.”

“There’s always something going on around the world at any given time, and for us we feel good about our ability to execute through it. And in this case, as I said, it really was just the conversion rate against the context of a materially higher pipeline.”

“As far as being the economy, there’s no really new news on the economy.”

“I won’t go into the role of predicting revenue growth rates out several quarters, other than to tell you that we have a lot more coverage, and we have a pipeline that’s growing substantively.”

Fundamental Face Off: Tech vs. Consumer Staples

Despite the fact that the S&P 500 was down 63 bps today, there was one sector SPDR that closed in the green: $XLP (consumer staples).  To juxtapose this, the tech sector SPDR ($XLK) was down 81 bps, underperforming the S&P 500.  Today’s divergence is a continuation of a trend that’s been ongoing for several months.  As the XLP continues to make new highs, the XLK can’t break above levels it reached in April of last year.

Below is a comparison of some fundamental metrics of the 5 largest holdings of XLP vs. XLK.  For each index the top 5 holdings represent 40-45% of the total holdings.  I broke the fundamentals into two general categories: valuation and quality.  The tech companies beat the staples companies on every fundamental metric that I pulled: better margins, better returns on capital and better growth (past and projected).  And the tech companies are also cheaper on every metric except for PE; they are significantly cheaper on a P/FCF basis.  On top of that, the tech companies are skewed by the fact that AT&T is XLK’s 5th largest holding, which I would argue trades like it should be in XLP.  If ORCL, the 6th largest holding, were to be swapped in, the picture would be even more skewed on both the value and quality sides of the equation.


XLK vs. XLP Fundamentals


XLK vs. XLP Top Holdings