FedEx will benefit from chip demand, says Don Broughton

FedEx stocks soared after reported earnings and revenue that beat estimates and said it's exploring options for its freight unit. Joining us now, Don Broughton, Broughton Capital managing partner. Don, great to have you with us. Great to be here. The stocks up 14 1/2 percent or so this morning. Don, how much of that is news of the the potential spin off of the freight business 00. OK. What this what this is about is the fact that we've had a lugubrious waiting for good dough exercise where they were just were trying to get express margins where they needed to be. And that was virtually impossible. When you know, if you look at worldwide air freight numbers, they've literally peaked in October of 21 depending on which market somewhere around that area and then went on an exercise of almost two years where they declined by almost 30% in most markets, some over 30 markets percent. And no matter how well you run that business, when you lose 30% of the overall general demand, you are going to struggle with margins. I mean literally Express, Mark Express operating profit went from a peak of over 3.3 billion annual run rate to under a billion. And as we see, you know, demand for chips continue to go up and see worldwide air freight numbers start to really recover, especially in the Asia Pacific area, then Express's margins are going to do this and the the wait's over. You mentioned, I mean, it's certainly it's been a long way. It's six straight quarters, I think of revenue declines for FedEx. So it's it's been sort of a painful Rd. for FedEx investors. You mentioned chips and I think that's an interesting part of it. Yeah, Lugubrious, good word, interesting part of the story. When we hear about all the demand for AI chips and chips for all parts of the supply chain audience, etcetera, you have to think about FedEx as part of the equation. Absolutely. And I'm glad you said that because you know, when we look at it and go look, here's I, I don't know anything about which of the chip suppliers you should be buying, But I do know who moves not only the chips themselves, but moves all of the devices, the gadgets that have chips in them. And that's FedEx. And, and if I can pay what, 12 times forward earnings for a company that moves all the chips or whatever the valuation is on NVIDIA and some of these other companies, I'm like I said, it's what I know, but I'm going to, I'm going to pick a, a, that kind of valuation because as earnings come back here and they will come back in, in a, in a, in a, in a, in a firefight. So right, you obviously like FedEx and the FedEx story, you're actually short UPS personally as well as in your firm's portfolio. And so why short on UPS? They have adopted a a cost structure via their latest union contract that puts them in a permanent disadvantage. And not only do they have to pay higher wages, but they also in that contract, if you read it closely, they can't really adopt technology initiatives without the union's approval. And that puts them in a a permanently hamstrings them against the competitor who doesn't have those issues. They, they've spent billions upon billions on better and better technology over the years. I've often said that actually, if you look at FedEx, it's actually a technology company disguised as a, as a, as a transportation company. It's a, it's a, it's a technology company in drag. Don, thanks. Great to speak with you, Don Broughton, Broughton Capital.