FedEx results indicate investors should not expect a quick recovery in the transport sector.
FedEx sounded the alarm, and investors in its archrival are taking notice.
Shares of United Parcel Service (UPS -2.79%) traded down 3% as of 2 p.m. ET after FedEx missed quarterly expectations and lowered its full-year forecast.
Falling in sympathy
Transportation companies have been stuck in traffic for the last few years. A surge in shipments after the height of the pandemic gave way to a slowdown as the economy cooled and interest rates spiked higher, leading to soft pricing.
The question for investors has been how long the down cycle will last. Judging from FedEx’s results, there will be no quick recovery.
FedEx missed top- and bottom-line expectations and cut its guidance for full-year profits. Although UPS is separate and its business mix is a little different from FedEx, investors are understandably concerned that the “challenging” market impacting FedEx will also eat into UPS’ results in the quarters to come. The outlook was weakest for FedEx’s premium offerings, suggesting a lack of pricing power in the months ahead.
Is UPS stock a buy?
UPS, like FedEx, is a stalwart of the global economy. The company’s services are hard to replace, and there is a good chance that over time the company, and the stock, can outperform the market.
That said, it is hard to outrun the business cycle. And UPS’ new labor contracts, reached after difficult negotiations last year, will weigh on results in the near term. Investors should feel no urgency to rush in and buy the dip.
Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends FedEx. The Motley Fool recommends United Parcel Service. The Motley Fool has a disclosure policy.
