Closing Bell - Closing Bell Overtime: Stocks fade into the close, Nike & FedEx earnings 12/19/24

Episode Date: December 19, 2024

Today’s show features a panel with BD8 Capital Partners CEO Barbara Doran and Morgan Stanley global Chief Economist Seth Carpenter on the market’s initial rebound from Wednesday’s massive sell off and whether the fade into the close is a red flag for stocks. Oppenheimer’s Brian Nagel reacts to Nike’s results and Evercore ISI’s Jonathan Chappell weighs in on Fedex’s numbers. And Advent Managing Partner John Maldonado discusses whether the Fed hinting at fewer rate cuts next year could hurt the outlook for dealmaking in 2025.

Well, that's the end of regulation. Agnico Eagle Mines ringing the closing bell at the New York Stock Exchange. J.P. Morgan Asset Management doing the honors at the Nasdaq. It's a mixed end to a volatile session. We really basically failed to rally here. As stocks did rally at the open through the session, popped on hopes of averting a shutdown, and then drifted lower here in the final moments into the close. The major averages heading for big weekly in the final moments into the close. The major averages heading for big weekly losses after the Fed reset the narrative. That is the scorecard on Wall Street. But the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan

Brennan with John Ford. Well, coming up this hour, two crucial reads on retail and logistics during the holiday season. When we get earnings from Nike and FedEx, we're going to have the numbers and expert analysis as soon as they cross. Plus, does an uncertain Fed path and a less certain economy pour cold water in hopes of an M&A boom in 2025? We're going to ask the managing partner of $90 billion private equity firm Advent for his take. And the FDA says it has resolved the shortage of a key weight loss drug. And that's bad news for one of the year's biggest health care winners. We'll explain why ahead. As we await earnings from FedEx and Nike, though, let's break down today's market action with BD8 Capital Partners CEO Barbara Duran and Morgan Stanley Global Chief Economist Seth Carpenter.

It's great to have you both here. Barbara, I'm going to start with you because we really failed to hang on to gains here. X, the Dow, which finished up, it looks like maybe 15 points, so fractionally higher today. What does that tell us about the state of the market after the dramatic pullback we saw yesterday, the spike in the VIX, and the move higher in the 10-year Treasury yield?

Yeah, Morgan, it was a dramatic move, but we've seen this a couple times this year, most particularly in August. And in each of the cases, it's been a buying opportunity, but it takes a few days to calm the nerves. Because when you look at what has really changed, yes, the Fed is going to stay higher for longer, but I think that was pretty well telegraphed. You know, I think people may have been expecting they'd talk about three cuts. Now they're talking two, maybe it's one. But the fact is the economy remains very strong. And you saw that this morning in the cheap GDP revision, the final revision up to 3.1

versus 2.8 percent. You saw in the retail numbers recently reported. You saw the initial jobless claims holding steady. No, you know, warning signals there. So you've got a strong economy and that means good things for the for earnings next year. And that's what, you know, will support the market. But in the meantime, there will be choppiness. We do have uncertainties in terms of policy with tariffs and immigration, whether that will be inflationary. But we don't know yet. And we will know that hopefully sometime in the first quarter and start to take that into account. Seth, I want to get your thoughts on what we did hear from Fed Chair Powell yesterday and what we saw in the forecast, because inflation really seemed to take on a lot of attention as we got a more hawkish tilt here, even in the midst of the cut yesterday. It looked like, you know, it's a drop from three down to two in the forecast for 2025 now.

So a Fed that's that's likely to stay higher for longer. What got my attention, though, around this, and this was particularly true in the press conference, was the comments about some policymakers, some decision makers factoring in the possibility of higher inflation tied to fiscal policy. That seemed a little unusual to me. Want to get your thoughts? Yeah, it is tricky. And we don't have such big sweeping changes in elections, so we don't have a huge sample to compare. Look, Chair Powell had said when they make actual decisions, they don't sort of act prospectively about what might change with policy. But when they write down their own projections, each of them gets to make their own judgment about what the likely outcome is. From my perspective, and I completely agree that the starting point for the economy right now

is on very solid footing. And so we are in as much as ever a wait and see mode where the Fed has to see the data coming in to see what happens. I think there's huge uncertainty about how tariffs will be implemented. Are they going to come in all in one fell swoop? Will it be spread out over time? I think that matters a lot for what it means for inflation and what it means for growth. I'll add in there, though, I think the Fed, as well as a lot of folks in markets, underestimate just how negative for U.S. growth the tariffs are. So it is an inflation story, to be sure. But there's a big growth story as well that I don't think enough people are focusing on. Okay. I want to mention FedEx results are out. Stocks popping 9, 10%. Frank Holland has those results ready. Frank?

Well, hey there, John. Missed on the top line, but a beat on the bottom line. The estimate for EPS was $3.91, came in at $4.05. But the real story is that FedEx has confirmed, it was long speculated, they will spin off their less than truckload trucking business, FedEx Freight. The idea here is to unlock shareholder value. We're just talking about this on Closing Bell a short time ago. FedEx overall as a company trades at about 12 times forward earnings. And that includes its freight business, again, an LTL trucking business with about $9 billion in annual revenues. If you look at their peers, names like Old Dominion and also XPO, they move less

freight and traded a significantly higher multiple, both in the 30s. So really, this is about unlocking shareholder value and a release. CEO Raj Rumanian says this process will take about 18 months. It's going to be executed over the next 18 months. He goes on to talk about the fact that he believes that they're going to be able to continue, even with the separation, the spinoff into a separate company, the cooperation between FedEx Freight and also their ground and their express business. Earlier this year, they combined the ground and express business into one unit, combining it, kind of breaking decades of tradition in FedEx, keeping them separate. Now he's saying that along with this spin, that they're going to still be able to cooperate. That

was one question from a lot of investors and analysts, whether or not FedEx Freight and the other part of FedEx, the remaining part of FedEx, if you will, will continue to work together. FedEx often wins business by bundling their trucking services along with other freight services through Ground and Express. They're able to win business, but they also charge less than many of the other peers, both on the e-commerce side and also on the LTL side, the trucking side. So again, shares of FedEx moving double digits higher, missed on the top line, a beat on the bottom line. But the real news here is that FedEx will officially spin off its freight division. That process is expected to happen over the next 18 months. And CEO Rossi Romani is going to be on Mad Money with our Jim Cramer later at six o'clock to talk about this separation of the trucking unit into a separate public company. Again, FedEx,

missed on top line, beat on bottom line. But again, John, the real news here, public company. Again, FedEx, miscellane top line, beat on bottom line. But again, John, the real news here, the spinoff of FedEx free. Back over to you. All right, Frank. Thank you. Yeah, a lot of spinning going on out there. Barb, both you and Seth have been saying that should buy the dip. Consumer spending, jobs and wages are solid. But today, the S&P is just below where it closed the day after the election, I believe. How much has your level of confidence in the strength of equity shifted, if at all, since the post-election rally started? It hasn't shifted at all. I mean, we've seen in this last month in December a lot of laggards in terms of all the cyclicals, economically sensitive stocks have given back a lot.

There was a lot of euphoria after the election in terms of deregulation and tax cutting and what that would mean for the economy. But at the same time, you saw the mega cap tech, you know, as always taking the lead and running forward. Yesterday was about, you know, getting rid of momentum traders, trend followers and taking profits yet again in the mega caps. So I think that, you know, the bull market is still very much intact. I think that you can just take your time in terms of picking here and picking there, although I was in buying today, had some new cash to put to work, and all my favorite names, because it's hard to pick the bottom. And I think the bottom downside is protected because of the strong economy,

and the earnings will out. So it has not shaken my faith at all in this market. And I think this is part of modern day portfolio management and trading is these swift down drafts that can amount to nothing more than a buying opportunity at the moment. Okay. Well, Seth, the strength of the consumer is a big justification for optimism here. But how quickly might the consumer go from strong to less strong, given some of the persistently high costs out there and some of the growth questions perhaps related to policy? Yeah, no, I think that's a real key question. I'd say right now everything seems fine, just fine. The last jobs report we got showed continued job gains plus continued wage gains.

The product of that is labor income, which is really a key driver of overall aggregate spending. The slightly lower front-end rates are going to help a little bit at the margin. I think the real question is going to be some of these big headwinds to the economy, be it tariffs, which we think can be a real drag on growth, be it restriction in immigration, which we think could hurt the services sector a lot. Those are, for me, the sorts of changes in policy that we really need to see a material weakening in the outlook for the consumer. Because apart from that, the consumer really is on very solid footing. Barb, I want to get your thoughts on what we just saw and heard from FedEx in the sense that it looks like they are revising down their fiscal 2025 revenue guidance to flat growth year on year versus the prior forecast of

low single digit percentage increase. How does it speak to even if you have a strong consumer here in the U.S., even if you have the spinoff of the freight business for FedEx and we know that there's a very specific company turnaround story, restructuring story that's going on at FedEx as well. But how does it speak to the global market, if you will, especially at a time where this is not the only the FOMC is not the only central bank this week that has been making moves? Yeah, no, it's an interesting question because, Mara, you point out they are a special situation. Their top line is not growing. So they've been doing a massive cost cutting. Of course, the spin out, as Frank described, was key to the story. But the other

question is, why is the top line not growing? What's happening with demand in the macro? I mean, there are competitive forces in this particular case, you know, whether it's the Amazons of the world, backward integrating and all that sort of thing. But it's really about, you know, what is happening in the macro level and demand? You know, we are still seeing in the U.S. consumer demand holding up. But we've seen on the margin, we've been seeing this all year, you know, the lower income consumer or even middle income are trading down. And so, and I think that hurts, you know, shipping. But it's more complex for FedEx. It really, I think, has a lot to do with competition and changing methods of delivery. I mean, they have a hub and spoke. Others have a different, more efficient system. They're working on that. So I think it's more idiosyncratic for them.

All right. Barb, Seth, thank you. Good to see you. Thank you. Now let's turn to Mike Santoli for a broader look at transports as FedEx soars after reporting second quarter results. Mike. Yeah, John, maybe FedEx can help get the transports off the mat a little bit. Take a look at the longer term trend. This is a two year here, along with the 200 day moving average. And you see that almost vertical drop down in the transports.

Of course, FedEx has been a support in the past year or so to the transports. But you have things like airlines, railroads and trucking. It's been particularly weak, by the way, also Uber in here. And that has been particularly weak, by the way, also Uber in here. And that has been a weak stock lately. So obviously, if you think of it as a bellwether, it's showing you that there is a bit of doubt about the cyclical parts of the economy, especially the goods producing areas. So we'll see if that's a critical juncture at that point. Take a look at FedEx against the transports as well as its competitor, UPS. And here's where you see it's a five year

chart. Here's where you see it's a five-year chart. Here's where you see FedEx kind of lifting off as people got more confidence in the restructuring story and the idea that they might be able to surface some value through financial engineering as we got confirmation today. UPS obviously really struggled in there. It's kind of the cost margin equation when it comes to UPS has been a challenge. And that has brought their valuations together. And really, since UPS came public, let's say about 25 years ago, it has always traded at something of a premium. It's considered a more stable business, less exposed to some global forces, and so therefore always traded at a higher P.E.

Now you see it kind of collapsing there toward that similar range, well below a market P.E. And you see, actually, with FedEx's bounce today, you see they're probably going to actually get even closer in terms of anticipated valuation. Any sense out there of which of these stocks Amazon has had the bigger effect on over the past two, three years as it's increased its own delivery, last mile delivery operation? You know, I think it's kind of, well, given that FedEx is more global and it seems much more exposed to the freight business, the sort of global trade and things like that, perhaps you can

say the bigger effect has been on on UPS. So, of course, didn't Amazon stop just working with FedEx at some point? So it seems as if it's kind of been this restraint on demand across the entire entire system. Yeah. And they have a huge China business import export business out of China as well. Mike Santoli, we'll see you later this hour. After the break, the hotly anticipated earnings report from another turnaround story. Nike, one of the Dow's worst performers this year with clues on the consumer this crucial holiday season for retail. And later, the private equity playbook for 2025. We'll talk about how the Trump administration and the clouded picture on rates could impact dealmaking.

Plus, new headlines just crossing from Washington on the effort to avert a government shutdown. We've got the latest when Overtime returns. Welcome back to overtime nike results are out the stock is popping right now a little bit more than eight percent seven eight percent fluctuating let's bring in oppenheimer senior analyst brian nagle as we go through those results get ready to bring it to you. Brian, nobody was expecting a stellar report here, but I guess there's some optimism for new leadership. And perhaps as long as margins aren't eroding too much and discounting isn't getting out of control, there's a strong brand here. No, look, good afternoon. I think that's exactly right. I mean, the real key here is, in my mind, is an expectations for this order report from Nike

were quite subdued. Okay now that we were telling our clients that as we got ready for the report- so I've not seen the numbers yet I mean obviously we see the stock. Bounce rather nicely here but look at my view. You know we

all talked a lot about the struggles of Nike. I think the brand is intact. I think the company's now much more focused on product innovation. Reestablish your relationships with key wholesale partners. And we have intact. I think the company is now much more focused on product innovation, reestablishing relationships with key wholesale partners. And we have a new CEO of the company who's going to speak on the conference call here, you know, the next hour or so. So I think the setup is quite good, even if the results themselves are still weak for Nike standards.

How much? Well, let's let's not leave you in suspense any longer. Courtney Reagan has those Nike numbers court. Hi, Johnny. They were coming out there right as you were getting to Mr. Nagel. So let me get them to you here. The Nike earnings per share coming in at 78 cents. The street was looking for 63 cents. So better than expected by 15 cents. Revenues also slightly ahead of estimates at twelve point three five billion. The street was looking for twelve point one three. Still down, though, about 8% for those

revenues year over year. Second quarter gross margin for Nike, also above expectations at 43.6%. The street was looking for 43.3%. Remember, that's important because we anticipated a lot of elevated promotions in the quarter to clear through some of that merchandise. And the company had warned us that they had not been seeing great traction in their stores and websites. So that's better than expected. Second quarter EBIT margin, 11.3%. The street was also looking for 9.3%. So, so far here, a much better than expected report. As Brian was saying, we expect to hear from new CEO Elliot Hill on the call. The street really wants to hear about his expectations and strategy going forward. That's where largely the focus will be. We usually get an earnings guidance or forecast on that call. Remains to be seen if we'll do that today because of the new CEO and a potential new strategy,

but we'll bring it to you and comb through the details here while you're having the conversation. Pop back on with anything relevant. Back over to you. All right, Courtney, thanks. Brian, now that we have the numbers, to me, mildly educated, the gross margins at 43.6 percent, a little bit better than expected, maybe the most encouraging thing. No, definitely. Look, I think Courtney did a great, great rundown here. I mean, as I'm listening to these numbers and starting to look at them here on my screen, look, this is very much better than feared. OK, so I think that's a big positive. And like you're saying, John, you know, the gross margin, you know, Nike had cautioned that gross margin could be weak with some promotions. You know, it seems like they were probably overly conservative there. Again, a sign of a smart company. But I definitely these these results were definitely better than feared. I think that's why we're seeing the stock pop so nicely

here in the aftermarket. And it looks like Nike Direct, $5 billion down 13 percent. Wholesale, $6.9 billion down 3 percent. What do you need to hear from Elliott Hill on the call? And then perhaps whenever we get this rescheduled investor meeting in terms of strategy as they do discount to clear out inventory as the product pipeline is in need of refreshing, all of these things we've been talking about for a number of quarters now? Yeah, so look, what we want to hear is a path towards better product innovation. And to be fair, with Nike, Nike's been talking about better product innovation and better consumer reception to some of the new products they've introduced recently. So we've already started to have this conversation. I think it would be great to hear from Elliot.

You know, and I think that, so that would be a positive. Now, they're probably going to give some guidance, just like Courtney said in her remarks. You know, Nike typically waits for the conference call to give guidance. Last time, they indicated they're no longer giving annual guidance, but I think they're going to guide for Q3. On the heels of these numbers, guidance for Q3 is probably decent. So I don't think there's much risk there. But, again, that will be something to listen for. And then what they're hearing from their wholesale partners.

I mean, this is a big shift back for Nike. They started working with some of these key retail partners. I mean, does Elliott have some initial insights into the how that's working but again the real key here is product innovation. And how consumers are reacting to the new products that Nike is introducing. Stocks up ten percent right now do you buy

here. Absolutely I mean I look I think I think he's cheap. I want to make sure I'm clear I mean. I'm looking at Nike over the next twelve months I I was saying to our clients and I know my my. Colleagues here at Oppenheimer. This over the last couple days I really think I'm Nike to our clients and my colleagues here at Oppenheimer just over

the last couple of days, I really think Nike could be one of the most interesting mega cap stocks for 2025, because I think that's the year you're really going to see this turnaround start to take shape. And at these levels, this stock is cheap. OK, Brian Nagel, thank you. Thank you. We've got breaking news out of Washington on the government funding bill. And Emily Wilkins has a story for us. Emily. Hey, Morgan. Well, yes, we now have the text of an agreement to the government spending bill. And it does include extending the current debt ceiling. It was going to be expiring in January of 2025. This piece of legislation would extend it for another two years into january of 2027

that takes a huge lift off the shoulders for republicans next year who are looking at a difficult battle to reauthorize it also just gives a little bit more breathing room not having to worry about that fiscal cliff for a little bit longer you've also now seen president-elect donald trump come out and endorse this legislation he said in a piece on Truth Social that this is a very important piece vital to the American first agenda was added as well. The date of the very unnecessary debt ceiling will be pushed out two years. Now we can make America great again very quickly, which is what the people gave us a mandate to accomplish. He further says that all Republicans, even Democrats, should do what is best for our country and vote yes on this bill tonight.

We are expecting to see floor action a little bit later this evening. The big question now is exactly how they're going to be able to move this forward, because there are many questions about whether or not Democrats are going to be on board to help them. Remember, of course, Republicans have a very narrow majority. You already have a few of them who are concerned about this debt limit increase. They wanted to have that be a separate negotiation. And then, of course, there's the Senate and what they are going to be able to do. So still a lot of twists and turns.

We are, of course, under the 36-hour mark to get this done before a government shutdown. And we will be following this every step of the way. But at this point, they have a plan B. It's very slimmed down. We went from about 1,500 pages to 116 pages. Certain things don't seem to be included in the bill, including that ban on American investments and different Chinese infrastructure. Pieces on AI have been taken out. Pieces on blockchain, on supply chains have all been taken out. There still is disaster relief, though, that is in the bill. That was one of the biggest spending items. And, of course, you heard Elon Musk raise concerns about spending.

But you did see Trump come in and say that this was an important component to have. And it seems that it has made it through the cuts. And now, of course, it's just a matter of a race against the clock. Morgan? That race for lawmakers still there? The lawmakers, yes. Everyone's still here. Everyone's waiting. And this could go potentially very late into the night the rate no i'm sorry the raise is out my bad the raise is out of the bill and

that that was obviously one of the most controversial pieces yeah emily wilkins great reporting this afternoon thanks for keeping us updated when we come back the managing partner of 90 billion dollar private equity firm advent international joins us with a look at how the trump administration, the Fed's uncertain path, could impact dealmaking in the new year. And much more on today's After Hours action ahead, including an analyst's first take on the news from FedEx about separating its freight business and creating two public companies. We'll be right back. Welcome back to Overtime. Wall Street has been buzzing about hopes for resurgence in M&A next year, thanks to the incoming Trump administration,

but did yesterday's Fed commentary and less certain economic landscape throw cold water on that excitement? Well, joining us now is John Maldonado, managing partner at Advent, a private equity firm with more than $88 billion in assets under management. And, John, welcome. It's great to have you here on set. Thank you so much for having me. So what is your outlook for M&A, especially after we got a more hawkish Fed, which seems to be poised to stay higher for longer? Well, we're coming off a great 2024.

So we were able to deploy a lot of capital and realize $9 billion last year. And now, with what we're seeing from the Fed, we're even more optimistic about what's going to happen next year. Why? IPO markets are open. Interest rates have stabilized and are coming down, maybe not as fast and as much as people would have liked, but we've got stability. The business community does like that there is a business-friendly president that's going to be in the White House. There's going to be some unpredictability around that, but we're going to be on our toes and we're going to see what comes in 2025. What are you expecting from the incoming Trump administration? We're

talking a lot about regulation, but also about trade, tariffs, tax policies, immigration. Look, there's a lot in that question. What we do know is we've got somebody who wants to support the business community to deregulate, support M&A. That's the lifeblood of our business. So we're excited about an M&A environment. We're also excited about something that he can't control, which is the IPO markets, which feel more open today than they have been in the last few years. You guys like to focus on transformation and acceleration when you're taking majority stakes, particularly in transformation. When you look at AI, you've talked about customer services being one area where you see the potential to transform.

What are you seeing in sales? What are you seeing in other areas where you think, with your focus or your expertise, you can boost these businesses up pretty quickly and add more value? Well, you nailed it. The way we see it is the opportunity is in our portfolio companies. We're constantly looking for tailor-made value creation plans to help drive growth. Each company is going to be a little bit different.

We've got an in-house team that focuses on AI and use cases within the portfolio, whether it be in sales, automation, or otherwise. And it's never going to be a one-size-fits-all approach. We've got to find that right mode of operation for each of the companies. So how are you handling the question of how much the company should be spending on the infrastructure, the resources it takes to be able to deliver that AI acceleration? That is a great question. Because we view ourselves as great collaborators with our portfolio companies, it's a give and take. We're not going to impose upon them the answer to that

question. They're going to bring to us the best ideas, and we're going to iterate as we do in a partnership to figure out the best answer that we can come to together. Now, I've gotten to know Advent through the acquisition of Maxar, but you have quite a portfolio, to your point, across a number of industries and sectors. Healthcare is a big area for you. So how are you thinking about investing in healthcare, particularly at a time where perhaps in part due to this tragic murder that we saw of an executive at UnitedHealthcare. But it does speak to there's a lot of animosity toward the health care system and to some extent private equity in the system. For our part, the way we approach it is we want to do well by doing good. We're only going to invest in health care business models that are good for providers, good for patients, good for outcomes, and ideally do it at a lower cost. We really use

this mantra of you can only do healthcare private equity investing if you have the intention of doing well by doing good. I want to get your thoughts on what we're seeing in the private markets in general right now, because there's a lot of focus on M&A within the sector. I just think about BlackRock and some of the deals they've struck around private credit, for example. You're seeing what I would call the conglomeratization maybe of private markets with different companies pushing further into wealth management, insurance, et cetera. You guys are pure play private equity. You've been around since the 1980s. You've been through a number of financial cycles. How are you thinking about

all of this at Advent as the landscape changes? We think that there's tremendous opportunity for us to remain focused on private equity, remain focused on our people, generate great returns. It's one of the things that we talk about internally, this idea of specialization at scale. Go deep in your regions, go really deep in your sectors, and then find ways to benefit from those insights across different private equity programs that we have. What's the thing too few people are watching that could go wrong in 2025? Oh, there's a million things that could go wrong. The thing that too few people are thinking about, oh, gosh.

Look, the stock market is at all-time highs. We might be underestimating the possibility of recession and what that could mean for the market in 2025. Okay. John Maldonado of Advent, thank you so much for being here on set with us. Great to have you. Great to have you. Thank you. Well, it's time now for a CNBC News Update with Kate Rooney.

Kate. Hey there, Morgan. The suspect in the murder of UnitedHealthcare CEO Brian Thompson made his first appearance in federal court today, where a judge ruled Luigi Mangione will be detained until his next hearing in mid-January. In addition to state charges, Mangione faces four federal counts in connection to the shooting, including murder, stalking, firearms offenses, which could bring the death penalty. Meanwhile, New York City Mayor Eric Adams, former top aide Ingrid Lewis-Martin, was indicted today for allegedly accepting

improper gifts. Prosecutors said Lewis-Martin used her position to fast-track approvals for construction projects in exchange for more than $100,000 in cash and benefits for herself and her son. Mayor Adams is already facing federal corruption charges. And sweetened cereals and white bread, they're out. Salmon and avocado are apparently in. The FDA just changed the rule deciding which foods can be labeled healthy under a new rule. Essentially, all whole fruits and vegetables now qualify, along with other foods with limited added sugar, salt, and saturated fat, guys. Back to you. All right, thanks. White bread was still in there? I'm surprised. Avocados and salmon weren't on there. Yeah. Well, we've got a news alert on U.S. steel moving lower right now in overtime.

Company unexpectedly releasing its fourth quarter forecast, guiding to a loss per share between 25 and 29 cents, with Q4 adjusted EBITDA of approximately $150 million, which was much lower than its previous guidance. The company's citing elevated costs and depressed steel prices. And up next, an analyst reacts to FedEx results and tells us why he's just lowered his forecast for 2025, despite a number of macro tailwinds for the company. And later, an update on Vertex, the drug company working on a non-opioid painkiller. We told you

about that last week. We're going to tell you what's weighing on those shares. That's coming up next. They're down 11%. Stay with us. Welcome back to Overtime. Take a look at FedEx shares. They are still higher in overtime, about 7.5% off the very highs after a report where EPS beat and they announced a spinoff of the freight business. Joining us now is Evercore ISI Senior Managing Director Jonathan Chappelle. He's got an outperform rating, $316 price target on the stock. Jonathan, good to have you. So slight miss or in line, depending on how you look at it, on revenue here.

Excitement about the spinoff, but that kind of excitement can fade quickly. In the underlying business, are you still just as optimistic after these results? I wouldn't say just as optimistic. I'd say relatively status quo. You know, there are three things we were looking for in this release. First and foremost was the spin of the LTL business. That's announced. Fantastic.

That's why the stock's up. The other things then were obviously the quarterly results themselves andL business. That's announced. Fantastic. That's why the stock's up. The other things then were obviously the quarterly results themselves and how you build up to those. And then also the full year guide for the rest of their fiscal 25. You know, when you look at it from a big picture point of view, the fiscal year 25 guide came down by a dollar, but the street was already there. We're at 1945, which is the midpoint of the new lowered estimate. I think it was important for them to right-size the expectations for the rest of the year rather than dangle out a big hockey stick for the back half. And you're right about the revenue side. There's only some things you can control. You can control price and you can control costs. FedEx is a cost

story. Cannot control the macro. Revenue's light on package disappointment in the US. Again, as we expected, we just took our numbers down yesterday. However, the cost side, after a quarter step back in their fiscal first quarter, when the stock was down quite significantly on a bit of a cost hiccup, they're back to on track with their cost initiatives. I think that's the most important takeaway from a fundamental standpoint. There's a lot of talk out there right now about the U.S. being better positioned than various other economies. FedEx is very much a global company.

How exposed is FedEx to policy and geopolitical flare-ups and uncertainty, given that we're likely to have a little bit of that in 2025? I mean, they're pretty exposed as a global enterprise, as you said. There's four major macro factors that we watch when it builds up to FedEx or their peer. Industrial production and retail sales are very U.S.-centric. But then you have China exports and international demand as well. In this particular quarter, the international economy business did a little bit better than we expected, whereas U.S. packages or U.S. ground was a little bit softer.

So as it relates to policy and geopolitics, if there's tariff initiation, if there's a closing of the East and Gulf Coast ports associated with labor strife, FedEx can benefit in a very short-term period from getting more air freight associated with bypassing some of those bottlenecks. But generally speaking, the U.S. economy is still the most important, and it's kind of bouncing along the bottom from a demand standpoint, which is why, again, the cost story and the yield story is most important to what FedEx can actually control this year. When UPS came out with the earnings back in the fall, they basically said that they expected peak shipping season to be a little bit softer.

And I realize it's a shorter season this year by a number of days. I'm sure we're all feeling it as we scramble to get everything ready for the holidays. But what is your read through from the results we've gotten so far from FedEx on peak? Well, the problem with that, Morgan, is that the fiscal period ended on November 30th. So this peak season and this real compressed peak season is really going to show in December. So unfortunately, we're going to have to see UPS's results in late January on how it played out exactly. Now, I'm sure there was some early buying. Again, it really didn't show up in the packages in the U.S. side for FedEx, but the UPS results in January will be more representative of exactly how the peak season looked. Is 2025 going to be the determining year for this turnaround, this restructuring at FedEx under a CEO who's now been at the helm for, what, two and a half years?

Yeah, I think it is. I mean, we could argue that 2024 was as well. You know, there's this buildup to this $4 billion cost savings. They executed in the first year $1.8 billion of cost takeout. This year's $2.2 billion. Not as a greater total, but it's obviously the less low hanging fruit. So there's a big execution question, which is I think really why the stock took a bit of a pounding after the fiscal first quarter miss. So when you had to

have the cost element of this, lay out the upside to the second quarter, again, to kind of right size the expectations for the rest of the year without changing their cost algorithm. This is strictly kind of a macro reset lower, which the street was already there, the buy side was already there. This execution over the next six months will go a long way in determining the success of this new strategy and really bridging to the next part of their strategy, which is a network 2.0 for fiscal 26 and 27. Okay. Jonathan Chappell, thanks for joining us. Shares of FedEx up 9%, largely on that freight spin. Follow the leader. Up next, Mike Santoli looks at what the first increase

in the leading economic indicators report in more than two years could mean for the economy and the market. And cue the QR code for the latest installment of my On the Other Hand newsletter. This week's debate, beginning next year, should I start revealing which side of my On the Other Hand argument I really believe? Well, you can scan the QR code on your screen. Ooh, spicy. Yeah, well, you know, maybe. We'll be right back.

Welcome back. The conference board's leading economic index increased in November for the first time since early 2022. But what does it really mean and can it be trusted? Well, Mike Santoli is back to explain. Mike. Yeah, Morgan, this is kind of the you had one job story when the leading economic indicators is built to try to predict turns in the business cycle. It's been failing for a couple of years. So what you see here is the leading economic index having crossed below the coincident index, which is just telling you the current state of the economy way back in 2022. Now, every other time that that had happened, as you can see, these shaded areas is basically right ahead of a recession or when you were just starting

a recession. That's almost by definition. And it's sort of reverse engineered to try and do that. Now we see this tiny little upturn. You can barely see it on the other end. So the question is, what's driving that and can we believe it? Now, one of the reasons I think it failed is the index is perhaps too heavily reliant on things like the inverted Treasury yield curve, which has not been a recession signal to date. Things like ISM, manufacturing surveys and also housing related numbers. So all those have been weighing it down. It perked up this time because building permits recovered and the stock market itself was up. That is part of the leading economic indicators, as well as hours work. So I think you say that's great. We're glad we got some relief, but you don't necessarily know exactly how much more time

it might buy this economic expansion, guys. It does feel like the latest example of longstanding economic models, forecasts, data collection not working in this cycle and maybe perhaps needing to be revisited. I do want to shift gears a little bit, though, Mike, and ask you sort of a basic question here. And that is the U.S. 10-year Treasury yield, 4.564 percent right now. We've seen a pretty dramatic move here in the last couple of days. And I think there had been a sense, at least from some traders I've spoken to, that to start reaching these levels again was going to start denting stocks. Yeah, and it sort of has kept the stock market definitely back on its heels. I don't think it's a magic level, but above four and a half has been tough for the equity market to really swallow easily over the last year or two.

I think you have to keep it in mind. Now, is it happening because inflation expectations are ripping? Not really. It's mostly because the Fed told you short-term rates are probably not going to go down too much more from here. And you have to usually build in a little bit of cushion in a decent economy to have a steeper yield curve. So that's what we're trying to navigate here. Not great news for the housing market. Mike, thanks. Well, we've got breaking news, continuing breaking news on the continuing resolution. Emily Wilkins is back with that. Emily.

Hey, John. So now that Republicans have put out their plan B proposal, the big question is, are they actually going to be able to pass it? And what we are learning now is that it is very unlikely that they are going to be able to get the support that they have gotten previously from House Democrats. We just had the top Democrat in the House, Hakeem Jeffrey, chat with us for a second. Take a listen to what he said. The Musk-Johnson proposal is not serious. It's laughable. Extreme MAGA Republicans are driving us to a government shutdown. Jeffries and House Democrats are now in a meeting and we are hearing reporting that there are some cheers from inside the meeting and then chants of, well, it sounds like heck no, it's a slightly different word.

So it seems like Democrats are gearing up to oppose this. That means that Mike Johnson is going to have to keep almost every member of the House Republicans together if they want to get this bill over the finish line. That's going to be hard to do because there are some hardline members, like we've seen Chip Roy, who aren't very happy that this bill does include an extension of the debt limit for two years. They wanted to use that to negotiate, to bring down spending, to get some relief for the debt and the deficit. And then, of course, the huge question is what's going to happen when this bill gets over to the Senate side. There's Democratic control

there. We haven't yet heard a lot of senators weigh in. I think they're waiting to see what's going to happen in the House, whether or not this bill is going to be able to pass tonight or whether once again they're going to have to go back to the drawing board. Guys? Normally some compromise has to happen here. We'll see what happens this time. Emily, thanks. Well, shares of hims and hers health getting hit hard on FDA news about the official end to shortages of a key weight loss drug. We've got details straight ahead. And Darden Restaurants, the big winner in the S&P 500 today. The company beating earnings estimates, raising its full year revenue guidance thanks to strong same-store sales at its Olive Garden and Longhorn Steakhouse brands. Unlimited breadsticks, baby.

Shares finished up 14%. Welcome back. Shares of hims and hers health falling after the FDA today once again declared Eli Lilly's drugs Zepbound and Manjaro are no longer in shortage. But compounders will still be able to keep compounding at least for a little bit longer. So Brandon Gomez joins us with more on the decision. Color from the key players. And what is next? So what is next?

Yeah, there are some next steps for this one. The FDA is saying Eli Lilly's supply of those drugs are meeting and exceeding demand with sufficient reserves. Now, remember, they declared the shortage was over back in October. A trade association representing the compounders sued the FDA. That lawsuit allowed a window to keep compounding. Some compounders did tell me after today's decision that this was not unexpected. Him shares did fall 7%. But remember, the only compound semaglutides, now those are closer to Novo Nordisk, Wagovi and Ozempic. And in fact, the FDA today reaffirmed that those semaglutides remain in shortage. So for investors, the question really should be, why wasn't Lilly up more on this news? Well,

some analysts say it's because the FDA did provide compounders the off-ramp they asked for. State licensed compounders think local pharmacists have 60 days to distribute their supply. Outsourcing wholesale compounders have 90 days. Those are the ones that HIMSS are working with. And frankly, this still has to play out in the court as well. The trade group suing the FDA, telling me this is not a decision by a court, and there's much more debate to take place around pricing and accessibility of these drugs. So basically you have two sides saying two different things and the FDA in the middle. Who's right?

So, I mean, the question is that both sides could be right, and that's what the courts have to figure out and decide. Historically, the FDA has decided whether a drug is in shortage based on the distribution, the supply, what's being made by the wholesaler, not how those drugs are actually getting to patients who need those drugs. That's what the compounders are saying. The compounders are saying these drugs still have pipeline issues. They're not getting into the hands of Americans who need them.

And so their service is still needed in terms of providing that, closing that gap in accessibility. HIMS and Her stock is up 3x in the past 12 months. Outside of their ability to provide these drugs because the idea is there's a shortage from the people who are really going to be allowed to provide them longer term, is there a justification for that kind of a pop? Yeah, I mean, long term, right, you sort of talk to the company as well,

and I've spoken with HIMS and leadership over there, and they say a lot of their business is still in ED and hair loss. There's still very early stages in this sort of weight loss space as well. So yes, I guess you could say long term, this could be a play for them, or could be sort of capitalizing on this trend and knowing that long term things might not change. The FDA might say the shortage exists. You can no longer compound these drugs. Patients are going to have to turn elsewhere. But again, that's only something that courts are going to decide in time. We'll tell them. I'll keep following and reporting on for us. Of course. Viagra is so 20 years ago. People are still on Rogaine. Don't talk to me about Rogaine, Brandon.

Sorry, I know your audience. Brandon Gomez, thank you. We're compounding the topic here. Another down day for the S&P, albeit fractionally. PCE tomorrow, which you know is the Fed's preferred sentiment gauge. Also, the final Michigan consumer sentiment report for December. That's one to watch as well. You got to think that data is especially important in a week with all of this volatility. And there has been so much volatility.

We are currently down on the week for all the major averages. That's going to do it for us here at Overtime. Fast Money starts now.