FedEx sees improving outlook for e-commerce in ‘transition year’

Bloomberg

FedEx Corp. predicted a “transition year’’ for fiscal 2020, with an improving outlook for e-commerce profits tempered by concerns that international trade tensions will worsen.
Revenue per package in the ground-delivery operation rose 2.2 percent in the quarter ending on May 31 as volume growth accelerated to 8.8 percent, FedEx said in a statement. That signalled progress in the courier’s push to extract higher profits from the surge in home deliveries driven by online shopping.
FedEx is stepping up efforts to become the low-cost provider of e-commerce deliveries, paring jobs and partnering with companies such as Dollar General Corp. to add pickup and drop-off sites. But FedEx is struggling to shore up its Express air-delivery division — the unit most threatened by escalating trade tensions, especially between the US and China.

WEAK FORECAST
FedEx is struggling to keep up with Wall Street’s expectations as the company pours money into making deliveries more efficient and struggles with a cloudy trade outlook.
Adjusted earnings for the current fiscal year will drop by “a mid-single-digit percentage” from $15.52 a share in the year just ended, FedEx said in the statement. Analysts were expecting $16.15 in fiscal 2020 — an estimate that had already been whittled down from $20 about six months ago.
“Our fiscal 2020 performance is being negatively affected by continued weak- ness in global trade and industrial production, especially at FedEx Express,” said Chief Financial Officer Alan Graf. That impact extended a longstanding sense of frustration at FedEx with President Donald Trump’s willingness to stoke trade tensions, said CEO Fred Smith.
“Clearly, we’ve been very disappointed over the last few years with the assumptions that we made on the growth in international trade, particularly with the Trump administration,” Smith said on a conference call with analysts and investors. “We have become a protectionist country.”
“The utilisation of the ground network and the opportunity they feel that they have with e-commerce to significantly grow is the positive that people are taking out of this,” said Trip Miller, managing partner at Gullane Capital Partners, which owns FedEx shares. “But certainly, we didn’t hear anything positive about China. We didn’t hear anything positive about Europe.”
The shares rose less than 1 percent to $157.40 after the close of regular trading in New York. The shares have fallen 3.3 percent this year, while rival United Parcel Service Inc. was little changed and a Standard & Poor’s index of industrial companies advanced 19 percent.

NEW WEAPON
FedEx fired a new weapon in the simmering US-China trade war this week, suing the Trump administration to block enforcement of trade restrictions that have placed the company in Beijing’s crosshairs.
The federal lawsuit came after the White House barred US companies from selling technology to Chinese teleco- mmunications giant Huawei Technologies Co.
While trying to comply, FedEx employees mistakenly flagged packages involving Huawei. Now China is considering adding the courier to a list of so-called unreliable entities. Closer to home, the next 12 months will be pivotal for FedEx as it seeks to stem the decline in profit margins at the company’s ground unit. Recent moves include extending deliveries to seven days a week and reducing reliance on the US Postal Service.
FedEx’s Express business cut ties with Amazon.com Inc. as the largest online muscles into the delivery business. FedEx said it would focus on more profitable customers.
The challenge for FedEx — and UPS — is that deliveries to homes, where drivers often handle a single package at each stop, tend to be less profitable than business deliveries, where they might pick up or drop off several parcels.