FedEx (FDX, Financial), the transportation and logistics company, fell after non-US Express revenues missed expectations with lowered revenues and earnings guidance. FedEx Ground grew, but the segment’s margins contracted. Tariffs and trade uncertainties have thus far hurt Express more than any of the Fund’s other portfolio companies, as increased integration costs at TNT have combined with a worse revenue outlook to produce current results well below the segment’s long-term earnings power. None of these disappointments have changed the business’s competitive position or five-year outlook, but we lowered our appraisal in the quarter to reflect the lower-than-expected year-to-date results. Amazon’s increasing competition has received much media attention, but FedEx has (unlike UPS) already taken the pain of dropping direct revenue from Amazon. Plus, there are many companies that compete with Amazon and will therefore choose to partner with FedEx instead. Despite a poor outlook through 2020, FedEx stock is trading at a low-double-digit multiple of forward earnings and priced at a substantial discount to our appraisal, its free cash flow power and its historical valuation range.
From Longleaf Partners' third-quarter 2019 shareholder commentary.
