FedEx profit falls, company cites uncertainty over trade

Marco Green
September 20, 2019

Wall Street isn't buying it.

FedEx Corp. sharply cut its profit forecast for the year as it faces higher costs to expand services, lower revenue from cutting ties with Amazon.com Inc. and a worsening economic backdrop, sending shares of the delivery company plummeting 10% in after-hours trading.

The Memphis, Tennessee-based company failed to renew contracts with Amazon for US ground deliveries and air shipments as the ecommerce retailer builds out its own transportation network.

"Our performance continues to be negatively impacted by a weakening global macro environment driven by increasing trade tensions and policy uncertainty", said Frederick W Smith, FedEx Corp chairman and chief executive officer.

As the Sino-U.S. trade war continues, the shipper has become the target of Chinese ire over shipping mistakes involving several packages, including parcels addressed to China's Huawei Technologies Co, which Washington has put on an export blacklist.

Smith said spending by US consumers was masking weakness in production of goods, which is more global and played a big part in the soft beginning to FedEx's new fiscal year. FedEx, which already announced an employee-buyout programme in January, said it would pare its cargo-jet fleet to contend with the diminished expectations. In the fiscal first quarter of a year ago, it posted $3.46 in EPS and $17.05 billion in revenue.

At least five analysts downgraded the shares, taking Smith to task for what Deutsche Bank AG called a series of "missteps" in recent years. The company has annual revenues of $70 billion and a market capitalization of around $45 billion. The firm had revenue of $17.05 billion during the quarter, compared to analyst estimates of $17.05 billion.

Earnings for the fiscal year ending in May are expected to be between $11 and $13 a share before mark-to-market accounting adjustments and integration expenses. This year the company posted full-year earnings per share, which were a particularly low number attributed to its move to acquire TNT express. Even before the drop, the shares were already lagging UPS and a Standard & Poor index of US industrial companies.

For now, the company is running both the TNT and FedEx networks in Europe, which drives up costs, said Seaport's Sterling. It stated that it would be focusing now on other e-commerce companies such as Target Corporation (NYSE:TGT) and Walmart Inc. FedEx recently signed on Dick's Sporting Goods Inc.as a customer, for instance, to deliver the retailer's online orders. UBS Group set a $136.00 price objective on shares of FedEx and gave the stock a "sell" rating in a report on Wednesday, June 26th.

FedEx Express, FedEx Ground and FedEx Home Delivery shipping rates will increase by an average of 4.9 percent, while FedEx Freight shipping rates will increase by an average of 5.9 percent.

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