Rumours of hedge fund interest in express sector amongst results gloom

UPS issued a pessimistic trading update on Friday advising that it would see lower results than expected in the second quarter. Rather than profits falling, they will fail to meet expectations according to the statement. In terms of earnings per share, profit would rise between 3-7%.

The problem is the familiar one of “overcapacity in the global air freight market, increasing customer preference for lower-yielding shipping solutions, and a slowing U.S. industrial economy drove revenue and operating profit below expectations. In addition, UPS experienced some slowing in package volume growth as a result of labor negotiations.”

However, there appear to be some who think that the pessimism in the air and express sector might be being overdone. The ‘activist investor’ William Ackman is rumoured to be investing aggressively in FedEx. He has issued a letter to the investors in his fund management company stating that he was about to invest in a corporation that is “simple, predictable, and free-cash-flow-generative and enjoys high barriers to entry”. No one actually knows if FedEx is the target of Ackman’s ambitions, however he has a record of working towards restructuring the companies he invests in as well as attempting to indentify undervalued assets. In the past, he sunk a substantial amount of capital into Canadian Pacific railway, gaining sufficient influence on the board to expel the Chairman of the company amongst others.

With FedEx, his ability to influence the management may be more difficult in the light of Fred Smith’s combination of strength of personality and ownership of over 6% of the equity of the company. Nonetheless, if true, the move would be a vote of faith by one of the US’s more colourful investors and an interesting contrast to the current general gloom around both FedEx and UPS.