FedEx Corp. issued a warning that its business would slow down in the coming year, reporting a quarterly profit that fell short of expectations—an unsettling indicator for the US economy. The company was impacted by a reduction in priority services as customers opted for cheaper shipping alternatives, a trend that Chief Executive Officer Raj Subramaniam described as part of a “challenging quarter.” Although cost-cutting efforts made some progress, they only partially offset these challenges, the Memphis-based company said on Thursday.
Several equity analysts, including those from JPMorgan, Susquehanna, and Stifel, lowered their price targets for FedEx following the report. Morgan Stanley’s Ravi Shanker also downgraded the stock’s price target and rating, warning that FedEx’s issues may be more structural than cyclical, suggesting these challenges might persist for a while. During the latest quarter, FedEx saw customers becoming more price-sensitive, downgrading to slower, cheaper shipping options—a trend that also impacted UPS earlier this year. US domestic shipping volumes in FedEx’s Express segment dropped by 3% due to weaker demand from business-to-business customers, according to Chief Customer Officer Brie Carere.
Expectations for increased revenue and profits from premium services in the US also fell short, as Chief Financial Officer John Dietrich noted. Bloomberg Intelligence analyst Lee Klaskow added that the urgency to pay extra for faster shipping has diminished, typically a sign of tougher economic conditions when people are looking to cut costs.
FedEx now projects adjusted full-year earnings of $20 to $21 per share, down from its previous forecast of up to $22 per share. The midpoint of this new range aligns with the $20.53 average of analyst estimates compiled by Bloomberg. As an economic bellwether, FedEx is closely watched due to its vast exposure across industries like retail and manufacturing. The company is currently integrating its Ground and Express delivery networks as part of broader cost-reduction measures, and Subramaniam affirmed that the company is on track to achieve $2.2 billion in savings this fiscal year.
For the quarter ending August 31, FedEx reported adjusted earnings per share of $3.60, falling well below analyst expectations of $4.77 and last year’s $4.37. Revenue totaled $21.6 billion, slightly under the $21.9 billion analysts had forecast. TD Cowen analyst Jason Seidl noted that FedEx’s results “fell well short of our estimate and consensus expectations,” citing trade-downs and weak demand as ongoing pressures on the parcel market.
This was the first quarter FedEx reported under its new consolidated structure, combining its Express, Ground, and Services divisions on June 1.
