FedEx workers sort packages in Manhattan, New York City, U.S., May 9, 2022. REUTERS/Andrew Kelly
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Sept 15 (Reuters) – FedEx Corp on Thursday withdrew its financial forecast released just three months ago, saying a global demand slowdown accelerated in late August and will worsen in the November quarter.
Shares of the global delivery company plunged more than 16% after it also reported revenue and earnings for the first quarter ended Aug. 31 that missed Wall Street targets. S&P 500 futures fell on Thursday as FedEx increased its worries about a slowing global economy. Continue reading
Overall, a global slowdown in economic activity hurt FedEx Express revenue by $500 million and FedEx Ground revenue by $300 million in the quarter, FedEx said.
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FedEx said it is cutting costs, including closing some FedEx office locations, reducing hours worked and consolidating some sorting facilities.
The warning comes as consumers around the world grapple with higher costs for basic necessities like food, fuel and shelter while shifting spending away from e-commerce and back to personal shopping, dining and travel.
The World Bank said earlier Thursday the world’s three largest economies — the United States, China and the euro zone — had slowed sharply and even a “moderate hit to the global economy next year could plunge it into recession.”
Some experts said FedEx should have caught wind of the slowdown in demand much more quickly — particularly after Amazon said it was overbuilding warehouses, US seaport directors signaled a slowdown in imports and consumer spending continued to struggle on the back of inflation. Continue reading
“You should have seen this coming a month ago,” said Satish Jindel, an industry consultant who helped found and expand the company that became FedEx Ground.
FedEx overestimated demand for peak holiday travel last year, drawing complaints from its independent contractors who paid for unneeded trucks and workers.
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Shippers like FedEx and UPS have imposed a variety of surcharges for issues from fuel to special handling during the pandemic, and those profit-boosting fees are at risk, Jindel said.
CLIMATE “CHALLENGING”
FedEx on Thursday said its business was being hit by service challenges in Europe and macroeconomic problems in Asia. The region’s largest economy, China, is grappling with COVID-19 lockdowns and heatwave-related power outages.
The warning dragged shares of competing delivery companies as well as retailers in extended trading. United Parcel Service (UPS.N) fell 5%, while Amazon (AMZN.O) fell 1.9%.
According to Refinitiv IBES, FedEx expects 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 guidance for the fiscal year.
The wide gap between FedEx’s performance and Wall Street expectations comes after analysts already softened their estimates for the quarter, said Cowen analyst Helane Becker, who added that the company’s shares lost about 10% of their value, since they released their now – withdrawn forecast in June .
And the warning is likely to increase pressure on FedEx’s new chief executive officer, Raj Subramaniam, to close a profitability gap with UPS after the company ceded two directorships to activist investor DE Shaw in June.
“Global volume declined as macroeconomic trends deteriorated significantly later in the quarter, both internationally and in the US. We are addressing these headwinds quickly, but given the speed at which conditions were changing, 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 Baertlein in Los Angeles; Edited by Peter Henderson and Christopher Cushing
Our standards: The Thomson Reuters Trust Principles.
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