FedEx Corp. on Tuesday cut its 2019 profit forecast for the second time in three months, sending its shares down 5 percent and fueling fresh worries it is losing ground in Europe to delivery rivals United Parcel Service Inc. and Deutsche Post DHL Group.
Lisa Baertlein and Ankit Ajmera of Reuters had the news:
The profit warning and weak quarterly results were another blow to FedEx after cutting its forecast in December, when it warned of a sharp showdown in global trade.
The package delivery industry is widely seen as a bellwether for the global economy.
“Slowing international macroeconomic conditions and weaker global trade growth trends continue,” FedEx Chief Financial Officer Alan Graf said in a statement on Tuesday.
Executives also blamed the disappointing results on the cost of launching year-round, six-day-per-week operations at FedEx Ground in the United States and continued weakness in its international Express business, which includes former Dutch delivery company TNT Express.
Kate Rooney of CNBC.com reported that trade wars are also having an effect:
Despite a strong U.S. economy, FedEx said its international business weakened during the second quarter, especially in Europe. FedEx Express international was down due primarily to higher growth in lower-yielding services and lower weights per shipment, Graf said.
To compensate for lower revenue, Graf said FedEx began a voluntary employee buyout program and constrained hiring. It is also “limiting discretionary spending” and is reviewing additional actions.
FedEx shares have dropped roughly 27 percent in the past year, lagging the XLI industrial ETF‘s 1 percent decline.
The U.S. and China remain locked in an ongoing stalemate on trade tariffs. On Tuesday, there were multiple reports about progress on negotiations between the world’s two largest economies. According to Bloomberg, some U.S. officials fear that China is reneging on certain trade concessions.
Max Garland of the Memphis Commercial Appeal reported that the company lowered its projection for increased revenue as well:
Smith said in Tuesday’s earnings call that FedEx is expecting to end the 2019 fiscal year with $4.5 billion in increased revenue, down from original projections of $6 billion.
Still, FedEx executives reiterated their long-term confidence in the business. Smith said the company is seeing a few “green sprouts” appear and that the third quarter is in the rearview mirror. President and COO Raj Subramaniam referenced a “pickup” in business the past few days.
FedEx downgraded its 2019 fiscal year forecast to earnings of $11.95 to $13.10 per diluted share, excluding year-end retirement plan accounting adjustments.
Analysts anticipated FedEx wouldn’t have a stellar quarter due to mounting pressure from slowing global economies and the costly integration of European courier TNT Express continuing. They still expressed hope for the stock long-term, however.