Coverage: FedEx slashes forecast, stock price drops
FedEx said Tuesday it was starting a voluntary buyout program for some U.S. workers after troubles in its express delivery business and a European acquisition have hurt profits.
Paul Ziobro of MarketWatch.com had the story:
The company declined to say how many jobs it is targeting, but said it plans to make a similar offer to international workers.
FedEx employs more than 450,000 people globally. The company says the vast majority of its buyout offers will be made to workers at the FedEx Express unit, which has 227,000 employees, and at FedEx Services, which provides back-office functions and employs another 30,000 people.
The Memphis-based company also cut its profit targets for the current fiscal year, which ends in May. The changes come after FedEx abruptly replaced the head of its Express unit David Cunningham, who is retiring at the end of the month.
Shares of FedEx plunged 5% to $175.49 in after-hours trading. As of Tuesday’s closing price, the stock had fallen about 26% so far this year, compared with a 19% decline for United Parcel Service Inc., shares of which fell about 3% in late trading.
Waverly Colville of CNBC.com reported that the global economy’s slowdown is affecting the company:
In October, the International Monetary Fund cut its global growth forecasts, citing trade tensions between the US and its trading partners. It expects the global economy to grow at 3.7 percent this year and next, down 0.2 percentage points from its previous prediction.
The US and China have been engaged in an escalating trade war, with the US placing 10 percent tariffs on $200 billion worth of Chinese goods. On December 1, the planned increase to 25 percent tariffs were postponed to March 1 as both countries seek a negotiated settlement.
Amid the trade uncertainty, major global markets have weakenedand volatility has rocked US stocks, fueling concerns of a global economic slowdown. In Europe, where FedEx cited weakness, key markets such as Germany and Italy have fallen into bear market territory. China, South Korea, Turkey and Mexico are also all in bear market territory.
To compensate for weakness in its international segment, FedEx announced plans on Tuesday to cut costs. The company said it will implement a voluntary buyout program, limit hiring, reduce international network capacity at FedEx Express and reduce discretionary spending.
Lisa Baertlein of Reuters reported that its Express division’s revenues have taken a hit:
FedEx, which is in the throes of a record-setting winter holiday shipping season, launched a new cost-cutting campaign after its Express revenues took a hit. On Dec. 7, FedEx announced that the CEO of its Express unit was retiring at year-end.
Executives noted a sharp UK slowdown due to Brexit uncertainty, Germany’s recent gross domestic product contraction, protests in France that threaten to spread to nearby countries and a cooling down in Asia.
FedEx is seen as a bellwether for the global economy and its results sparked concern that the United States may catch the “cold” affecting other regions, said Trip Miller, managing partner at Memphis-based Gullane Capital.
“This confirms a lot of market fears … and is probably why the (stock) market has been off so much,” said Miller.