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Dec. 20, 2018, 6:46 a.m. EST

FedEx CEO: It’s ‘fantastical’ to think Amazon Air is a threat

CEO says concerns about Amazon competition represents a ‘significant misunderstanding’

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By Tomi Kilgore, MarketWatch


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FedEx CEO Frederick Smith, from December 2006

Wall Street may be worried about the competition FedEx Corp. is facing from e-commerce juggernaut Amazon.com Inc.’s Amazon Air, but FedEx just brushed off those concerns, saying that’s enough already.

During the package delivery company’s post-earnings conference call with analysts, the company faced a few questions about the Amazon /zigman2/quotes/210331248/composite AMZN -1.79% threat. Thompson Davis & Co. analyst David Campbell asked, what is FedEx’s strategy to fend off competition from Amazon?

FedEx Chief Executive Frederick Smith started by saying, “I’m not really sure how to answer this question,” according to a transcript provided by FactSet. He said that Amazon is a “wonderful company” and it is a “good customer” of FedEx, but he doesn’t see it as a peer competitor at this time, and for many reasons, he doubts it ever will be.

He ended his answer with a mic drop:

‘So I don’t know what I can say other than what I just said. I think the prospects that this company is going to be “disrupted,” which just occurs over and over again, to quote a previous statement, is fantastical. So I’ll leave it at that.’

FedEx CEO Frederick Smith

That said, FedEx’s stock /zigman2/quotes/203047719/composite FDX -0.53% tumbled 12.2% to the lowest close since September 2016, after the company warned late-Tuesday of slowing in its international business, announced cost-cutting measures and lowered its profit outlook.

Don’t miss : FedEx slashes profit targets, will offer buyouts.

Also read : An earnings double whammy may add fuel to the fire on Wall Street.

CEO Smith tried to explain his nonchalance, by saying Wall Street’s concerns about Amazon represented a “significant misunderstanding.”

He said Amazon Air’s network is set up to move inventory within the “prodigious” Amazon system. It moves not-in-stock and low-turn products, and forward-stocked items for Amazon’s third-party customers who can’t duplicate the inventory. Therefore, Smith said it’s scheduled differently than the systems set up by FedEx, or by its real rival United Parcel Service Inc. /zigman2/quotes/201245396/composite UPS -0.06%

See also : UPS, FedEx stocks drop to pace transport losers after Morgan Stanley highlights Amazon Air risk.

Meanwhile, when Merrill Lynch analyst Ken Hoexter asked if FedEx had seen any impact from Amazon Air, and Chief Marketing and Communications Officer Rajesh Subramaniam chimed in by saying:

“Ken, the short answer to that question is no.”

And when Dan Ronan of Transport Topics asked, what concerns does FedEx have about Amazon Air’s recent expansion at Northern Kentucky, Rockford International and Alliance airports, Subramaniam answered:

“Well, Dan, as we’ve talked about before, we don’t have any concerns.”

FedEx’s stock has plunged 33.1% over the past three months, while rival UPS shares have dropped 20.2% and nonrival Amazon’s stock has lost 22.4%. In comparison, the Dow Jones Transportation Average /zigman2/quotes/210598063/realtime DJT -1.04% has shed 20.6% and the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.88% has lost 11.7% over the same time.

/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 2,954.91
-53.82 -1.79%
Volume: 8.89M
Sept. 18, 2020 4:00p
P/E Ratio
113.58
Dividend Yield
N/A
Market Cap
$1480.08 billion
Rev. per Employee
$359,671
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/zigman2/quotes/203047719/composite
US : U.S.: NYSE
$ 242.78
-1.30 -0.53%
Volume: 4.35M
Sept. 18, 2020 4:00p
P/E Ratio
15.99
Dividend Yield
1.07%
Market Cap
$63.75 billion
Rev. per Employee
$304,846
loading...
/zigman2/quotes/201245396/composite
US : U.S.: NYSE
$ 159.66
-0.09 -0.06%
Volume: 7.27M
Sept. 18, 2020 4:03p
P/E Ratio
31.71
Dividend Yield
2.53%
Market Cap
$137.85 billion
Rev. per Employee
$149,503
loading...
/zigman2/quotes/210598063/realtime
US : Dow Jones Indices
11,431.92
-120.44 -1.04%
Volume: 193.76M
Sept. 18, 2020 5:15p
loading...
/zigman2/quotes/210598065/realtime
US : Dow Jones Global
27,657.42
-244.56 -0.88%
Volume: 703.89M
Sept. 18, 2020 5:15p
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Tomi Kilgore is MarketWatch's deputy investing and corporate news editor and is based in New York. You can follow him on Twitter @TomiKilgore.

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