Markets Choose Cautious Optimism

After a rough stint of earnings reports last year, FedEx finally delivered some positive news for investors. Although it did lower the bar quite a bit beforehand, at least it beat those reduced expectations. 🤷

Its fiscal third-quarter earnings per share (EPS) of $3.41 beat the $2.73 expected. However, revenues of $22.17 billion missed the $22.74 billion analyst forecast.

Like last year, the company continues raising shipping rates wherever possible to offset lower volumes. It increased them by an average of 6.9% in January, hoping its revenue per shipment can continue improving. That figure rose by 11% in its fiscal third quarter. 🔺

Meanwhile, the company’s cost-cutting efforts bore fruit last quarter, helping its profits beat expectations. Executives continue focusing on efficiency, laying off 10% of its officers and directors last month. They’re also assessing all other measures to bring costs in, including cutting flights and grounding planes, reducing office space, and adjusting the Ground unit in pick-up and delivery.

As a result, the company raised its full-year fiscal-2023 EPS estimate to $14.60 to $15.20, up from its prior forecast of $13.00 to $14.00. Wall Street expected $13.56, so this upbeat outlook is a pleasant surprise.  🎁

As the company (and many others) have been saying, they remain cautious on the demand side of the equation. Inflation, an uncertain macroeconomic environment, and changing consumer behavior have most companies, especially retailers bracing for a slow 2023. ⚠️

That said, investors are happy to see profitability improve in this environment. As a result, $FDX shares rallied another 12% after hours. 🛫

It was another volatile day for bank stocks, with the primary focus being on First Republic Bank ($FRC). 🕵️

The bank has been in focus because the market believes it’s in a similar situation to Silicon Valley Bank. It’s a regional bank sitting on a lot of unrealized losses on its books, a high number of uninsured deposits, and a potentially skittish deposit base.

That left it in a precarious position over the weekend. And unfortunately, its late-Sunday efforts to reassure the market that it had $70 billion in available liquidity and access to the Fed’s Bank Term Funding Program were ineffective. As a result, its shares fell over 60% on Monday and have been trading erratically all week. 😬

Wednesday morning, its credit rating was downgraded by rating agencies Fitch and S&P, contributing to a 21% decline in its shares. Then late yesterday evening, its executives said they were weighing strategic options to shore up its liquidity, including a sale.

Volatility continued this morning, with shares falling more than 30% in pre-market trading as confidence continued to erode. Unlike Credit Suisse and other banks that received “votes of confidence” from regulators to help stabilize them, First Republic has been left to fend for itself. 🤕

At least that was until this afternoon when reports indicated that a group of financial institutions was gathering to deposit $20 or $30 billion into the bank. And then, by the close of business, we heard that eleven Wall Street banks did agree to deposit $30 billion into First Republic. 💰

The eleven banks are each committing at least a billion dollars and are obligated to keep the deposits at First Republic for at least 120 days. Initially, rumors were that the bank would be acquired, but many analysts say the unrealized losses in its bond portfolio made it unappealing to many suitors. As a result, this alternative was seen as a better option by the banking sector. 

Why would a group of competitors chip in to save the bank? The group said in a statement: “This action by America’s largest banks reflects their confidence in First Republic and in banks of all sizes, and it demonstrates their overall commitment to helping banks serve their customers and communities.” 👍

Ultimately it comes down to confidence. Hopefully, enough confidence in the system has been restored between the government’s efforts and the industry supporting itself to prevent further bank runs. But only time will tell. 🕰️

And speaking of government support, the banks are taking advantage of it. Access to the discount window, the new Bank Term Funding Program, and bridge loans pushed the Fed balance sheet up by nearly $300 billion. 

As we suggested above, the broader problems are far from solved. But at least in the short-term, many believe this should give First Republic Bank and the industry some breathing room to sort through its problems in a less panicky manner. With that said, a 20% after-hours decline in $FRC shares signals there’s still a lot of skepticism out there. 🤨

We’ll all just have to wait and see what tomorrow brings… 👀

Signet Jewelers shined a bit brighter after reporting fourth-quarter earnings. 💎

The company reported adjusted earnings per share of $5.52, slightly above the $5.43 expected. Sales of $2.666 billion also topped the $2.652 billion consensus estimate.

North American same-store sales declined 9.3% YoY, but average transaction value rose 3.9% to help offset lower transaction volumes. Meanwhile, international same-store sales fell 6.8% YoY, with average transaction value rising 13.3%. 🔻

For the coming year, U.S. Jewelry industry revenues are expected to decline by mid-single digits, with lower price point consumers remaining under pressure. Like other retailers, the company is also feeling the impact of a weaker economy, high inflation, and changing consumer behavior. 

As for the engagements segment of the market, which drives nearly 50% of Signet’s merchandise sales, the company expects headwinds to continue into the second half of fiscal 2024. It’s looking for a turnaround in late fiscal 2024 and continued recovery into fiscal 2025. 💍

Despite all that, Signet’s executives are optimistic as they head into fiscal 2024. They say the company is well-positioned to capture market share after mitigating its supply chain issues. And ultimately, they’re confident in their ability to deliver an annual double-digit non-GAAP operating margin despite the industry headwinds. 🔮

Overall, investors took the news positively. $SIG shares were up over 11% on the day. 📈