FedEx plunges as bad results spur outlook cut

Bloomberg

FedEx Corp plunged after cutting its profit forecast for the second straight quarter, as weak international demand hurt sales and the courier ramped up investment to handle soaring e-commerce deliveries.
The results for the company’s fiscal second quarter were “breathtakingly bad,” with weakness in both the ground-delivery unit and air-cargo business, said Deutsche Bank AG analyst Amit Mehrotra. Adjusted earnings will be no more than $11.50 a share in the fiscal year ending in May, down from the previous expectation of as much as $13, FedEx said in a statement.
“Earnings appear to be in free fall, with seemingly little clarity being provided by management as to the duration of the current downturn and drivers of recovery,” Mehrotra said. “We’d characterize these numbers as weaker than even the most bearish estimates.”
FedEx’s crumbling outlook is piling pressure on Chief Executive Officer Fred Smith as the company contends with disruptions driven by the rise of online shopping and Amazon.com Inc. FedEx and Amazon, which is building out its own delivery network, ended most of their business ties this year. That’s weighing on FedEx’s sales, which are also suffering from weaker pricing, trade tensions and the timing of Thanksgiving in the US.
The shares sank 7.5% to $151.01 in early trading Wednesday. FedEx had advanced 1.2% this year, trailing both the 23% gain by United Parcel Service Inc. and a 27% increase for the S&P 500 Index.
E-commerce has been squeezing profit margins at both FedEx and UPS. That’s because home deliveries are typically less profitable than drop-offs at businesses, where drivers can often leave multiple packages with a single stop.
But FedEx continues to lag in adapting to the online surge. While UPS has stabilized its margins in recent quarters, FedEx’s margins have shrunk.

Amazon Feud
FedEx was already reeling this week as its feud with Amazon intensified in the middle of the busy holiday delivery season. Citing poor service, Amazon banned third-party merchants from using FedEx’s services.
While FedEx said Amazon’s latest salvo would only affect a very modest amount of business, it acknowledged that the end of most of its business with the e-commerce giant dented sales. Trade tensions also crimped demand from key industrial customers, FedEx said, even as the standoff between the US and China has eased somewhat.