Squawk on the Street 12/20/23

SPEAKER_1 (0:00)

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David Faber (0:31)

Market insight and analysis. You're listening to the opening bell of CNBC's Squawk on the Street.

Carl Quintanilla (0:37)

Good Wednesday morning. Welcome to Squawk on the Street. I'm Carl Quintanilla with Jim Cramer and David Faber at Post 9 of the New York Stock Exchange. Futures a bit soft here, despite more signs of crumbling inflation in the UK and Germany today. Bond yields reflected. German 10-year below two, first time since March and our own 30-year with a three-handle, first time since July.

A roadmap begins with FedEx, the quarterly fumble. Shares tumbling after weaker demand hits their revenue outlook.

David Faber (1:01)

Plus year-end rally pause. Stock futures are pointing to a lower up and the S&P, though, is still within striking distance of what would be a record high.

And whether it's wheels falling off, suspensions collapsing or axles breaking, Tesla reportedly blaming bad drivers for those flaws.

Carl Quintanilla (1:17)

Let's begin with FedEx this morning. Down in the pre-market on these latest results, they cut their revenue forecast as weaker demand hit sales in Express. Here's CEO Raj Subramanian on the call last night.

Raj Subramanian (1:30)

When you step back and review how our businesses performed in environments with suppressed demand, we are delivering much better profitability today than we have historically.

In the quarter, we reduced costs by approximately $200 million in our surface network, including our US Express operations. This was driven by shifting to a single daily courier dispatch, applying dock productivity initiatives, consolidating underutilized sorts, and maximizing the use of rail.

Carl Quintanilla (2:08)

Jim, I'm curious, does they say pretty good things about freight and ground?

Jim Cramer (2:12)

Yeah, really interesting about freight, absolutely.

But you know what? Look, I think you have to say it like this. I think that Raj did a great job in the previous quarter, and everyone got all bulled up. But the one thing that I would point out, and I would be a buyer of the stock, it's probably going to settle in somewhere in the 240s, because this company used to lose a fortune on a quarter like this. I mean, you would have revenues that weren't that good. And David, we would be starting to think that activists are going to come in because they're losing so much money. They're making a huge amount of money with these revenue numbers?

What are they going to make when they get it right?

David Faber (2:48)

If they get it right, though, isn't that the question? I mean, what's going on with Express? Because that's kind of the locus of the problem here, right?

Jim Cramer (2:55)

Post office issues?

David Faber (2:57)

You know, and speaking to a couple of holders, I mean, it's hard to understand whether there's a margin at all in that business. If there is one, it's awfully small. And just to give you a sense, it used to contribute in 2022 EBIT from Express was 43.5% of overall EBIT at the company.

It's 18.9% this year, and it may fall to as low as 12% next year.

Jim Cramer (3:20)

Well, I know they...

David Faber (3:22)

The other parts are doing well.

Jim Cramer (3:23)

Yeah, the other parts are doing well.

David Faber (3:24)

What's going on here?

Jim Cramer (3:26)

Well, you know, Ken Hexner wasn't sure. I mean, he just knows a lot more than I do than analysts. And that was his first question, what's going on here? And you know what, my take is that if the pros don't know, that we need to know more. You're right.

I believe that there's just these, you know, a couple of different reasons why. None of them sound cogent and independently. Together, they obviously hurt things.

But I want to reiterate that, you know, he's doing a lot of reorg. He's still taking the... This Raj, the Drive program, is still going to take out the total five bill.

David Faber (4:04)

You know, remember, there was an activist in the stock. I reported on it for quite some time. It was DE. Shaw. There were some board members changes, some agreed upon board members. That was started in like April of 22

They're still there, by the way, as a significant holder, but there had been much better quarters for Express.