FedEx Faces Headwinds: FedEx (FDX.N) delivered disappointing results, slashing its full-year revenue outlook and revealing quarterly profits that fell significantly below analyst expectations. The company’s largest Express business bore the brunt as demand from the U.S. Postal Service dwindled.
Shares plummeted 9.8% to $252.58 in after-hours trading, reflecting the market’s discontent after the closing at $280 on Tuesday. The underwhelming results also cast a shadow on rival United Parcel Service (UPS.N), whose shares dipped by 2.9%.
While FedEx reported a 23% surge in adjusted earnings for the quarter ending Nov. 30, reaching $1.01 billion or $3.99 per diluted share, it fell short by 19 cents per share compared to analysts’ estimates, as per LSEG data.
In a regulatory filing, FedEx acknowledged the challenges ahead, stating, “We expect revenue will continue to be pressured by volatile macroeconomic conditions negatively affecting customer demand for our services across our transportation companies.” The company revised its full-year revenue forecast, now anticipating a low-single-digit percentage decline compared to its prior projection of roughly flat results.
Responding to investor demands for cost-cutting, FedEx announced plans to repurchase an additional $1 billion of common stock during fiscal 2024.
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The Express unit faced a 60% drop in operating income, attributed in part to diminishing volume from the U.S. Postal Service. FedEx is in negotiations to renew its contract with the Postal Service, eyeing improved profitability. Brie Carere, FedEx’s chief customer officer, acknowledged the challenges during a conference call with analysts, stating, “It will take quite a significant change in contractual terms and agreement to renew that.”
Analysts grilled the company on how it plans to enhance profitability in the struggling Express business. Raj Subramaniam, FedEx CEO, expressed confidence in the unit’s rebound, emphasizing restructuring efforts and the anticipation of revived demand.
Despite these challenges, FedEx’s Ground division, recognized for delivering packages from major retailers like Walmart (WMT.N), reported a 51% increase in operating income during the quarter. The company stated that Ground gained market share, retaining customers poached from United Parcel Service ahead of the contract expiration.
The earnings call occurred against the backdrop of the critical holiday shipping season, marred by economic uncertainties. As consumers grapple with inflation and rising costs, FedEx faces an uphill battle to navigate the complexities of the evolving logistics landscape.