Sunday, September 25

FedEx warns of worsening economy and pulls forecast; shares drop 16%


Article content

FedEx Corp on Thursday withdrew the financial forecast it issued just three months ago, saying a global demand slowdown accelerated at the end of August and was on pace to worsen in the November quarter.

Shares in the global delivery firm tumbled more than 16% after it also reported revenue and profit for the first-quarter ended Aug. 31 that missed Wall Street targets. S&P 500 futures fell on Thursday as FedEx added to worries about a slowing global economy.

Article content

Altogether, a worldwide slowdown in economic activity caused shortfalls in FedEx Express revenues of $500 million and FedEx Ground revenues of $300 million in the quarter, FedEx said.

Advertisement 2

Article content

FedEx said it was cutting costs including shutting some FedEx Office locations, reducing labor hours and consolidating some sorting facilities.

The warning comes as consumers around the world are struggling with higher costs for necessities like food, fuel and shelter at the same time as they are shifting spending away from e-commerce back to in-person shopping, dining and travel.

The World Bank earlier on Thursday said the world’s three largest economies – the United States, China, and the euro area – have been slowing sharply, and even a “moderate hit to the global economy over the next year could tip it into recession.”

Some experts said FedEx should have caught wind of cooling demand much more quickly – especially after Amazon said it over built warehouses, US seaport directors signaled decelerating imports and consumer spending continued to struggle discretion due to inflation.

Advertisement 3

Article content

“They should have seen this coming a month ago,” said Satish Jindel, an industry consultant who helped start and expand the company that became FedEx Ground.

FedEx overestimated demand for last year’s peak holiday shipping season, drawing complaints from its independent contractors who paid for unneeded trucks and workers.

Shippers like FedEx and UPS imposed a variety of surcharges during the pandemic for issues from fuel to special handling, and those profit-boosting charges are at risk, said Jindel.

CLIMATE “CHALLENGING”

FedEx on Thursday said business has been hit by service challenges in Europe and macroeconomic issues in Asia. The region’s biggest economy, China, is grappling with COVID-19 lock downs and heat wave-induced power outages.

Advertisement 4

Article content

The warning dragged down shares of rival delivery companies as well as retailers in extended trading. United Parcel Service dropped 5%, while Amazon fell 1.9%.

FedEx expects to report revenue of $23.2 billion for the first quarter, missing analysts’ expectations of $23.59 billion, according to Refinitiv IBES. Adjusted earnings are expected to be $3.44 per share, well below estimates of $5.14.

The company withdrew its forecast for the fiscal year.

The wide gulf between FedEx’s performance and Wall Street’s expectations comes after analysts had already tempered estimates for the quarter, said Cowen analyst Helane Becker, who added that company shares have shed about 10% of their value since they issued their now-withdrawn forecast in June .

Advertisement 5

Article content

And the warning will likely ramp up pressure on FedEx’s new chief executive officer, Raj Subramaniam, to close a profitability gap with UPS, after it ceded two director seats to activist investor DE Shaw in June.

“Global volumes declined as macroeconomic trends significantly worsened later in the quarter, both internationally and in the US We are swiftly addressing these headwinds, but given the speed at which conditions shifted, first quarter results are below our expectations,” Subramaniam said in a statement . (Reporting by Nathan Gomes and Shariq Khan in Bengaluru and Lisa Baertlein in Los Angeles; Editing by Peter Henderson and Christopher Cushing)

Advertisement

Comments

Postmedia is committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. Comments may take up to an hour for moderation before appearing on the site. We ask you to keep your comments relevant and respectful. We have enabled email notifications—you will now receive an email if you receive a reply to your comment, there is an update to a comment thread you follow or if a user you follow comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.



financialpost.com

Leave a Reply

Your email address will not be published.