FedEx Shares Plunge 12% After Slashing Annual Profit Forecast for Third Consecutive Quarter
FedEx Corp. (FDX) shares plummeted 12% on Friday after the parcel delivery giant cut its full-year earnings guidance for the third straight quarter, citing rising inflation, slowing demand, and geopolitical uncertainties. The company, which is widely seen as a bellwether for global trade, warned of weaker-than-expected revenues and mounting cost pressures despite extensive cost-cutting measures.
The company now expects adjusted earnings for the fiscal year to be in the range of $18 to $18.60 per share, below the $18.95 average analyst estimate. FedEx also cautioned that revenue will likely decline slightly versus the previous year, reversing its earlier forecast of flat sales.
Weakening Demand and Inflation Weigh on FedEx’s Outlook
The downbeat guidance comes amid a sluggish global economy and persistent inflationary pressures that are squeezing FedEx’s margins.
- Inflationary cost pressures: Higher-than-expected inflation during the quarter increased fuel and labor costs, impacting profitability.
- Weak demand from industrial customers: FedEx’s business services segment experienced declining volumes due to slower industrial activity.
- US Postal Service contract loss: The company’s contract expiration with the US Postal Service (USPS) also hit volumes.
FedEx’s Fiscal Q3 Earnings Miss Estimates
FedEx reported fiscal third-quarter earnings per share (EPS) of $4.51, falling short of Wall Street estimates of $4.57.
- Revenue: $21.7 billion, missing the forecast of $21.9 billion.
- Net income: $1.38 billion, down 5.6% year-over-year.
- Operating margin: Declined from 7.6% to 7.2%, reflecting higher costs and lower volumes.
FedEx CEO Raj Subramaniam acknowledged the challenging environment, stating that the company faced “a very difficult operating climate,” marked by a shorter peak shipping season and severe winter storms.
Impact of Trump’s Tariff Policies on FedEx’s Business
FedEx also highlighted the uncertainty surrounding US trade policies, particularly the proposed tariffs by former President Donald Trump, which could further disrupt parcel demand and increase costs.
- De minimis exemption removal: Trump has proposed revoking the de minimis exemption, which allows low-value shipments to enter the US tariff-free.
- Higher tariffs on Chinese imports: If imposed, these tariffs could inflate shipping costs and reduce package volumes.
FedEx CFO John Dietrich noted that the volatility in trade policies is making it harder for the company to predict volumes and profit margins.
FedEx’s Cost-Cutting Measures to Offset Headwinds
To mitigate profitability pressures, FedEx is aggressively cutting costs by streamlining its operations and reducing overhead.
- Workforce reduction: The company cut 12,000 jobs last year and plans further labor cost reductions.
- Fleet optimization: FedEx is retiring older planes to lower maintenance expenses and improve fuel efficiency.
- Network consolidation: The company is consolidating ground and air operations to boost efficiency.
Despite these efforts, rising costs and weaker demand continue to offset gains from its efficiency initiatives.
Market Reaction: FedEx Stock Hits Six-Month Low
Following the earnings miss and lowered guidance, FedEx shares dropped 12% in New York on Friday morning, marking the biggest single-day decline since September 2024.
- The stock is now down 30% year-to-date, underperforming the S&P 500, which is up 8% over the same period.
- Rival UPS (United Parcel Service) also saw its shares fall 4.5% in sympathy with FedEx’s gloomy outlook.
Analyst Commentary: Growing Concerns Over FedEx’s Profitability
Market analysts expressed concerns over FedEx’s shrinking margins and weaker-than-expected volumes.
- Conor Cunningham, analyst at Melius Research, noted:
“FedEx, like others, is struggling with an uncertain macro environment. The company’s inability to offset inflation with cost-cutting is concerning.” - Lee Klaskow, a logistics analyst at Bloomberg Intelligence, stated:
“Trump’s tariff proposals add another layer of uncertainty for FedEx. Predicting volumes has become increasingly difficult.”
FedEx’s 2025 Outlook: Lingering Challenges Ahead
Looking ahead, FedEx warned of continued economic uncertainty and weaker-than-expected shipping volumes in the upcoming quarters.
- Revenue forecast: The company expects revenue to decline slightly in fiscal 2025, reversing its previous forecast of flat growth.
- Profitability concerns: Despite cost-cutting efforts, FedEx’s margins may remain under pressure due to inflation and tariff risks.
- Trade war impact: If Trump’s tariff plans are enacted, FedEx’s international shipping business could face further disruptions.
FedEx’s Strategic Priorities Moving Forward
To stabilize profitability, FedEx plans to focus on:
- Efficiency improvements: Accelerating cost-cutting programs and optimizing logistics to reduce expenses.
- Pricing adjustments: Implementing higher shipping rates to offset inflationary pressures.
- Expanding e-commerce partnerships: Strengthening partnerships with e-commerce platforms to drive volume growth.
Conclusion: FedEx Faces Tough Road Ahead Amid Market Pressures
FedEx’s third consecutive guidance cut underscores the difficult environment the company is operating in, marked by inflationary pressures, weak demand, and trade policy risks. Despite aggressive cost-cutting efforts, the company’s profitability remains under pressure, raising concerns among investors.
With Trump’s trade policies threatening to disrupt the logistics sector further, FedEx will need to navigate significant challenges in the coming quarters to restore market confidence.
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