FedEx warns of deteriorating economy and withdraws expectations; Stocks down 16%

FedEx workers sort packages in Manhattan, New York City, US, May 9, 2022. REUTERS/Andrew Kelly

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(Reuters) – FedEx Corp on Thursday withdrew its financial forecasts it released just three months ago, saying the slowdown in global demand accelerated at the end of August and was on track to worsen in the November quarter.

Shares in the global delivery company fell more than 16% after it also reported revenue and earnings for the first quarter ending August 31 that missed Wall Street’s targets. S&P 500 futures fell on Thursday as FedEx added to concerns about a global economic slowdown. Read more

Altogether, the global slowdown in economic activity caused a shortfall in FedEx Express revenue of $500 million and FedEx Ground revenue of $300 million in the quarter, FedEx said.

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FedEx said it is cutting costs including closing some FedEx office locations, reducing business hours and integrating some sorting facilities.

The warning comes as consumers around the world grapple with the rising costs of necessities like food, fuel and shelter while shifting spending away from e-commerce to personal shopping, dining and travel.

The World Bank said earlier on Thursday that the world’s three largest economies – the United States, China and the eurozone – are slowing sharply, and even a “moderate blow to the global economy over the next year could push it into recession.”

Some experts said FedEx should have been caught in winds of lower demand more quickly — especially after Amazon said it outgrown built warehouses, US seaport managers pointed to slowing imports and consumer discretionary spending continued to struggle with inflation. Read more

“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 in the peak holiday shipping season last year, prompting complaints from its independent contractors who paid for non-essential trucks and workers.

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Jindel said that shipping companies like FedEx and UPS have imposed a variety of surcharges during the pandemic for issues from fuel to special handling, and that revenue-raising fees are at risk.

Climate ‘Challenge’

FedEx said Thursday that business was hit by service challenges in Europe and macroeconomic issues in Asia. The region’s largest economy, China, is struggling with the COVID-19 shutdown and power outages caused by the heat wave.

The warning sent shares of rival delivery companies as well as retailers down in extended trading. United Parcel Service (UPS.N) stock is down 5%, while Amazon (AMZN.O) stock is down 1.9%.

FedEx expects to post $23.2 billion in revenue for the first quarter, missing analyst 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 gap between FedEx’s performance and Wall Street expectations comes after analysts have already softened their estimates for the quarter, Cowen analyst Helen Baker said, adding that the company’s shares have shed about 10% of their value since it released its now-retracted forecast in June. .

The warning is likely to increase pressure on FedEx’s new CEO, Raj Subramaniam, to close the profitability gap with UPS, after it ceded two director seats to activist investor De Shaw in June.

Subramaniam said in a statement: “Global volumes fell as macroeconomic trends worsened significantly later in the quarter, both internationally and in the US. We are quickly dealing with these headwinds, but given how quickly conditions have changed, the First-quarter results are below our expectations. .

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Additional reporting by Nathan Gomez and Sharq Khan in Bengaluru and Lisa Bertlin in Los Angeles; Editing by Peter Henderson and Christopher Cushing

Our Standards: Thomson Reuters Trust Principles.

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