FedEx shares tumbled as much as 13% Wednesday after the package delivery company said its fiscal first quarter profit took a hit from slower economic growth and the loss of business from retail giant Amazon. CEO Fred Smith also blamed slower demand on "trade tensions and policy uncertainty."
In the most recent quarter, profit at FedEx declined 11%, falling short of Wall Street expectations. FedEx also lowered its forecast for earnings through next spring. Shares tumbled $22.70, or 13.1%, to $150.60 in early trading on Wednesday.
The Memphis, Tennessee-based company said it would cut costs, including scaling back capacity in its express air-delivery network by retiring airplanes after the peak holiday season. The express unit is particularly affected by trade uncertainty. On a conference call, Smith said trade disputes began to impact manufacturers in Europe and Asia in 2018, crimping demand for international shipping.
"The sharp step down appears to primarily be a function of a fall-off in international air activity," UBS analysts wrote in a Wednesday research note. FedEx's forecast was "much worse" than expected, the analysts added.
Higher shipping rates
FedEx is also raising prices. It announced Monday that it will raise rates on express, ground and home deliveries by an average of 4.9% starting Jan. 6. Freight rates will rise 5.9%.
Smith said escalating tariffs and trade tensions between the U.S. and China have lowered industrial production and hurt the international shipment of goods.
"We are reacting inside FedEx to these same things," he said. "As we went into the fiscal year [that started in June], we were hopeful of a trade deal and some sort of restoration of normalcy. That has not taken place."
Smith said spending by U.S. 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.
The company added that it was lowering its profit outlook for the rest of the fiscal year — through next May — partly because of the loss of ground-based shipments from a large customer. FedEx ended a contract with Amazon last month, having previously decided not to renew an air-shipping contract with Amazon.com Inc. as the e-commerce giant increasingly encroaches into FedEx's end of the shipping business.
FedEx said it is finding other business to replace the Amazon volume that it believes will be more profitable.
Its quarterly profit of $745 million was down from $835 million a year earlier. Excluding special items including expenses to fold European business TNT into its own, FedEx said it would have earned $3.05 per share. The average estimate of 10 analysts surveyed by Zacks Investment Research was for $3.17 per share.
Revenue was flat at $17.05 billion, also below analysts' forecasts.
FedEx said it now expects full-year earnings of between $11 and $13 per share, excluding TNT integration costs and an accounting adjustment related to a pension plan. Analysts had been expecting $14.68 a share, according to FactSet.
Before the release of the financial report, FedEx shares closed down 27 cents at $173.30, leaving them 32% lower than a year ago. In extended trading, they dropped another $16.95, or 9.8%, to $156.35.