FedEx Falls Short on Earnings, Trims Full-Year Revenue Forecast
In a setback for FedEx, the global delivery giant reported quarterly profits that significantly missed analysts’ expectations, causing its shares to plummet by 9.8%. The firm’s adjusted earnings for the quarter ending November 30 increased by 23% to $1.01 billion, or $3.99 per diluted share, falling short of analysts’ estimates by 19 cents per share. The lackluster results prompted a sharp decline in FedEx’s stock price, reaching $252.58 in extended trading.
Express Business Dips Amidst USPS Decline
The primary reason behind FedEx’s disappointing performance was a 60% drop in operating income in its air-based Express unit. The decline was attributed, in part, to reduced volume from the U.S. Postal Service (USPS), which has been shifting packages from higher-margin air services to more economical ground services. FedEx is currently in negotiations for the renewal of its contract with the USPS, aiming to enhance profitability from this business segment.
Revenue Forecast Cut and Market Response
FedEx has revised its full-year revenue forecast, now expecting a low-single-digit percentage decline compared to its previous estimate of roughly flat results. The company attributes this adjustment to volatile macroeconomic conditions affecting customer demand. In response to investor pressures to improve profits, FedEx announced plans to repurchase an additional $1 billion of common stock during fiscal 2024.
Challenges and Opportunities in the Ground Division
Despite the overall challenges, there were positive developments in FedEx’s Ground division, responsible for delivering packages from major clients like Walmart. Operating income for this segment rose by 51% during the quarter, with FedEx noting share gains and customer retention. The company expressed confidence in maintaining its customer base, even after the expiration of the contract covering UPS’s 340,000 United Brotherhood of Teamsters employees.
Outlook and Holiday Peak Shipping Season
FedEx’s regulatory filing acknowledged ongoing pressure on revenue due to volatile macroeconomic conditions affecting transportation services. The company expressed a cautious outlook for the remainder of the fiscal year, ending May 31. The earnings call coincided with the holiday peak shipping season, marked by subdued consumer spending amidst inflation and rising costs. Analysts pressed FedEx on strategies to enhance profitability in the Express business, with the company expressing confidence in a positive turnaround after restructuring and increased demand.