Capital Calls: FedEx delivers, for now

- FedEx results

- Carlsberg’s new CEO

- Enel

- Chinese banks

Scheduled delivery. FedEx is delivering a timely package to investors. Shares in the delivery company shot up over 10% on Friday morning, after it reported third-quarter results the day earlier, despite a 6% dip in revenue. For now Chief Executive Raj Subramaniam’s cost-cutting drive, which includes more than $4 billion in annualized cost reductions by the end of fiscal 2025, is enough. Cracks suggest that slicing expenses won't be a permanent fix.

FedEx is expecting to cut its U.S. headcount by some 25,000 year-over-year, by the end of this fiscal year. This puts the $56 billion company in a much better spot than it otherwise might be. The trouble is that as wallets tighten, people demand less immediacy for their deliveries. Revenue in the Express division, which offers an option for same-day delivery, fell 8% to $10.3 billion compared to the same quarter last year, the largest decline of all segments.

This division is also the largest by revenue, but it benefits greatly from scale. Operating margins dropped in the quarter to 1% from 4.6% as sales fell. Despite the fact that revenue fell in both the Freight and Ground divisions, those groups' operating margins grew. It suggests that the cost-cutting drive doesn't help when packages need to whip around the world quickly. Though shareholders were pleasantly surprised this quarter, it may get harder for Subramaniam to continue to deliver. (By Sharon Lam)

Clean brew. Carlsberg’s new boss is unlikely to tinker with the company’s corporate recipe. The $21 billion Danish brewer on Thursday named Jacob Aarup-Andersen to replace outgoing Chief Executive Cees ’t Hart. Aarup-Andersen joins from ISS, the facility management company he joined in 2020, before presiding over a over 60%-plus increase in the share price. Prior to ISS, he worked at Danske Bank, where he was turned down as CEO by the Danish regulator on the grounds that he had insufficient banking experience.

Aarup-Andersen’s lack of consumer experience may also raise eyebrows at Carlsberg. A veteran from a rival brewer might have been better placed to introduce new products, and adapt to new industry trends. However, the new boss’s finance pedigree and track record managing businesses suggests that his main job will be to implement the group’s current strategy. It aims to increase revenue by 3% to 5% annually until 2027 and boost operating profit growth above that level. Analysts are already forecasting such growth and given Carlsberg trades at nearly 11 times its expected EBITDA for 2023, a premium to rival Heineken, Aarup-Andersen’s main task is to hold the ship steady. (By Aimee Donnellan)

Recharging. Enel Chief Executive Francesco Starace’s slim-down plan is not getting enough attention. Last year, the $57 billion utility’s shares suffered as its net debt rose to 70 billion euros, and soaring interest rates and its base in a high-debt Italy battling spiralling energy costs spooked investors. That prompted the group to start aggressively selling assets in places like Chile, Argentina and Romania to cut debt by 21 billion euros.

Enel’s plan is on track. As of Thursday, it had clinched sales equivalent to around 8 billion euros, while net debt had fallen to 60 billion euros. That and the prospect of an 8% dividend return, higher than the average 5% for peers, should help the stock narrow a 30% valuation gap to rivals on a price to earnings multiple basis.

Starace’s possible exit at the end of his third mandate in May is, however, a worry. Since taking the helm in 2014, the 67-year-old Italian executive has set the state-controlled power company on a clear green energy trajectory, with one of the biggest green generation pipelines. Under his watch Enel’s renewable power capacity, increasingly a cheaper source of energy than fossil fuels, nearly doubled from 36 gigawatts in 2013 to 59 gigawatts in 2022. Despite a 35% share slide since 2021, Enel shares have still generated a total return of 100% during his tenure, less than Spanish rival Iberdrola but ahead of Germany’s RWE and E.ON. Yet Prime Minister Giorgia Meloni is not inclined to renew Starace’s mandate, Italian media reported this week. If Enel replaces its green champion with someone less competent, investors may stay jittery. (By Lisa Jucca)

While the iron’s hot. Western central banks’ new hesitation on interest rate hikes has given Beijing more breathing room. The People’s Bank of China announced late on Friday that it would cut the reserve requirement ratio (RRR) for most banks by 25 basis points, releasing around 600 billion yuan ($87 billion) of long-term funds, per Zhongtai Securities estimates.

The decision came as a surprise, as the central bank has been generously pumping up bank liquidity when rolling over maturing medium-term policy loans. The difference is that the latest move would push down banks’ lending costs, which will hopefully be passed on to companies and consumers. Such a subtler easing approach reinforces Governor Yi Gang’s view that China’s interest rates are at “appropriate” levels for now. Worries about the country’s mounting corporate and household debt help explain why Yi may favor keeping rates steady for longer. (By Yawen Chen)