FedEx shares sink after company cites weakening global demand

FedEx shares sink after company cites weakening global demand

FedEx warns on earnings

Shares of FedEx closed down more than 21% Friday after the company posted bleak preliminary earnings, citing weakening demand in global shipment volumes.

The shipping giant late Thursday also withdrew its full-year guidance and announced significant cost-cutting measures. The drop in its share price wiped around $11 billion off the company’s market capitalization.

“Global volumes declined as macroeconomic trends significantly worsened later in the quarter, both internationally and in the U.S.,” CEO Raj Subramaniam said in a release Thursday. “While this performance is disappointing, we are aggressively accelerating cost reduction efforts.”

In an interview with CNBC’s Jim Cramer on Mad Money, Subramaniam said he expects the economy to enter a “worldwide recession.”

“We are a reflection of everybody else’s business, especially the high-value economy in the world,” he said.

The announcement came among a broader market slump, which saw the Dow Jones Industrial Average shed around 1500 points this week. Earlier in the week, U.S. equities had their worst day since 2020 after August’s consumer price index report showed headline inflation edged up 0.1% on a monthly basis, despite a drop in gas prices

As part of its cost-cutting moves, FedEx said it will close 90 office locations and five corporate office facilities, defer hiring efforts, reduce flights and cancel projects.

Morgan Stanley analyst Ravi Shanker said the report could indicate a return to normal as pent-up demand from the pandemic wanes. Shanker wrote that the issue likely won’t be transitory, and that it could be the start of a “post pandemic unwind.”

The updates from FedEx came alongside fiscal first-quarter earnings that fell well short of Wall Street expectations. The company was scheduled to release results and hold a conference call with executives next week, but issued the report early.

Here’s how FedEx performed in the period, ended Aug. 31, based on Refinitiv consensus estimates:

  • Earnings per share: $3.44, adjusted vs. $5.14 expected
  • Revenue: $23.2 billion vs. $23.59 billion expected

The performance led FedEx to withdraw its full-year forecast that was set in June, citing a volatile environment that precluded prediction. The company reduced its forecast for capital expenditure for the year by $500 million to $6.3 billion.

The company cited specific weakness in Asia as well as challenges to service in Europe for its underperformance in the first quarter. While these factors choked shipping volume, the company said operating expenses remained high. FedEx reported an adjusted operating income of $1.23 billion.

For its fiscal second quarter the company expects adjusted earnings per share of at least $2.75 on revenue of between $23.5 billion to $24 billion. Wall Street analysts were looking for Q2 EPS of $5.48 and revenue of $24.86 billion, according to Refinitiv.