FedEx warns of deteriorating economy and pulls forecast; Shares fall 16%

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

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Sep 15 (Reuters) – FedEx Corp on Thursday withdrew its financial forecast issued just three months ago, saying the slowdown in global demand intensified in late August and was on pace to worsen in the November quarter .

Shares of the global distribution firm fell more than 16% as it reported revenue and profit for the first quarter ended Aug. 31, which missed Wall Street targets. S&P 500 futures fell on Thursday as FedEx added to concerns about a slowing global economy. read more

FedEx said that overall, the worldwide slowdown in economic activity reduced FedEx Express’s revenue by $500 million and FedEx Ground’s revenue by $300 million.

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FedEx said it was cutting costs, including closing some FedEx office locations, reducing labor hours and strengthening some sorting facilities.

The warning comes as consumers around the world struggle with higher costs for necessities such as food, fuel and shelter, as they shift spending from e-commerce back 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 euro area – were slowing sharply, and even “a modest outlook for the global economy in the next year”. The hit could turn it into a recession.”

Some experts said FedEx should have caught wind of cooling demand more quickly — especially after Amazon-built warehouses, US port directors indicated a decline in imports and consumer discretionary spending continuing to struggle due to inflation. kept. read more

“They should have seen it coming a month earlier,” said Satish Jindal, an industry consultant who helped start and expand what would become FedEx Ground.

FedEx underestimated demand last year’s peak holiday shipping season, receiving complaints from its independent contractors who paid for unnecessary trucks and workers.

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

Climate “challenging”

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

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

According to Refinitiv IBES, FedEx is expected to report revenue of $23.2 billion for the first quarter, missing analysts’ expectations of $23.59 billion. 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’s expectations comes as analysts already forecast for the quarter, said Cowen analyst Helen Baker, who said the company’s shares have shed about 10% of their value. Because he released his now-back forecast in June. ,

And after handing out two director seats to active investor Dee Shaw in June, the warning is likely to increase pressure on FedEx’s new chief executive, Raj Subramaniam, to close the profitability gap with UPS.

“While global volumes declined as macroeconomic trends turned significantly worse later in the quarter, both internationally and in the US, we are addressing these headwinds swiftly, but with the pace at which conditions have changed,” Subramaniam said in a statement. Considering that the first quarter results are below our expectations,” Subramaniam said in a statement. ,

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Reporting by Nathan Gomes and Shariq Khan in Bengaluru and Lisa Bartlin in Los Angeles; Editing by Peter Henderson and Christopher Cushing

Our Standards: Thomson Reuters Trust Principles.

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