Home Business FedEx Has Biggest Drop in Over 40 Years After Pulling Forecast

FedEx Has Biggest Drop in Over 40 Years After Pulling Forecast

FedEx Has Biggest Drop in Over 40 Years After Pulling Forecast

(Bloomberg) — FedEx Corp. saw its biggest stock drop since at least 1980 after withdrawing its earnings forecast on worsening business conditions, a potentially worrying sign for the global economy.

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The package-delivery giant flagged weakness in Asia and challenges in Europe as it pulled its prior outlook and reported preliminary results for the latest quarter that fell well short of Wall Street’s expectations. The conditions could deteriorate further in the current period, FedEx said.

The company will take immediate steps to cut costs, including parking some aircraft, cutting workers’ hours and closing more than 90 of its roughly 2,200 FedEx Office locations.

Put simply, it was an “ugly quarter,” according to Robert W. Baird & Co. analyst Garrett Holland. “Global freight demand has significantly deteriorated.”

FedEx shares tumbled 22% at 9:30 a.m. in New York on Friday.

While US economic data has been mixed, with employment and manufacturing holding up, companies across industries are starting to paint a grimmer picture of the economy. Conditions in Asia and Europe also appear to be weighing on the US, where consumers are shifting spending into travel and concerts and away from online shopping.

General Electric Co.’s chief financial officer warned Thursday that the company is seeing pressure on cash flow amid supply-chain snags, while industrial titans U.S. Steel Corp., Alcoa Corp. and Nucor Corp. have said deliveries are waning. The chief executive officer of McDonald’s Corp. said Wednesday he expects a minor US recession in 2023 and a more significant one in Europe.

Recalibrated Spending

Earlier this summer, retailers such as Walmart Inc. and Target Corp. scaled back expectations as consumers recalibrate their spending. In August, shipping containers arriving in Los Angeles — the US’s busiest port — fell by the most since the early days of the pandemic, which is another sign that demand is moderating.

FedEx’s bleak comments are a setback for its new CEO, Raj Subramaniam, who had won investor support shortly after taking the reins in June by raising the dividend, agreeing to revamp the board and laying out a multiyear plan to boost profit. Subramaniam now must steer the courier through a post-pandemic economy in which consumers are spending more on services than discretionary purchases.

Earnings, excluding some items, for the fiscal first quarter were projected to be $3.44 a share, Fedex said in a statement late Thursday detailing preliminary results. That’s well short of the $5.10 average estimate of analysts. Preliminary revenue of $23.2 billion in the period ended Aug. 31 narrowly missed expectations.

“Global volumes declined as macroeconomic trends significantly worsened later in the quarter, both internationally and in the US,” Subramaniam said in the statement.

The news triggered a raft of downgrades and price target cuts from Wall Street analysts. UBS AG analyst Thomas Wadewitz said the Express business is the primary driver of weak performance, though Ground operations also missed estimates.

“Express operating income was 75.8% lower than our forecast and Ground operating income 7.5% lower than our forecast,” Wadewitz said in a note to clients. “While we understand that Express is an asset-intensive business with a high fixed cost structure, we have a difficult time understanding what items could drive operating income lower to the extent seen.”

(Updates share move in first and fifth paragraphs, adds analyst comment in final paragraph.)

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