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LONGLEAF PARTNERS FUNDS'
MASON HAWKINS, C.T. FITZPATRICK & STALEY CATES
(continued from preceding
page)
Let me talk about FDX [Federal Express' parent] first. All this internet stuff, all this nonsense and hype - not that the internet is nonsense, but I just mean all the kind of excessive parts of it - have whipped FedEx around both for good and for bad. And last fall, things got euphoric - or maybe it was last winter. Everybody got so excited about its internet possibilities. And so its stock ran up.
And when the stock hit our appraisal, we trimmed back our position. We took some money off the table.
There's a great story, but it's not on the consumer side.
Cates: But more importantly, in terms of the fundamentals of the
business, even then, Fred Smith and the rest of the company would come out and say, "Look, we're not
an Amazon.com shipper.
We're a huge, huge internet beneficiary. However, we're not that kind of an
internet consumer-type business - door-to-door, residential stuff. It's more the business model of
how business-to-business commerce changes."
Dell
is a great example of that. As Dell ships all of its parts around
rather than holding them in inventory, FedEx is the biggest beneficiary of that. And that's way,
way more high powered [and important] to FedEx than, say, the consumer stuff.
When other investors figured it out, FDX got cheap.
Cates: So as a lot of this internet stuff backed off this summer and
as FDX reported a quarter of mid-single-digit revenue growth in the U.S., the same people who'd
gotten euphoric about it last winter kind of threw their arms up and said, "Gosh! This isn't an
immediate, double-digit beneficiary of
Amazon.com." Therefore, you saw it trade in line with some
of the internet names that came down.
All of that's just such a tempest in a teapot. Again, it doesn't change the
fundamental case - which is this huge business-to-business opportunity that's coming up.
FDX knows that its stock price decline has been overdone.
Cates: And not only do we firmly believe that, but a really
interesting thing happened recently - which is that the company for the first time ever came out and
announced a major share repurchase because they know what their shares are worth. And they know
that the price has been discounted way, way below their value. Therefore, they're going to shrink
the shares to take advantage of it. So over a long period of time, you'll see good volume numbers
and great margin numbers. And you'll see that FDX is a true beneficiary of e-business.
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THE PRECEDING WAS EXCERPTED LONGLEAF PARTNERS FUNDS' |
Page 12 of 12
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