FedEx (FDX) shares plunged nearly 15% on Friday morning after the company reported quarterly earnings that fell sharply short of expectations the previous day, highlighting investor concerns about new cracks in the U.S. economy.
FedEx, often seen as an economic bellwether, reported profits of $892 million for the first quarter ended Aug. 31, about 24% below analysts’ expectations. The company also lowered its financial outlook for the coming fiscal year, now expecting earnings per share of $20 to $21, down from a previous range of $20 to $22.
FedEx’s outlook contrasts with that of the Federal Reserve, which said the U.S. economy remains strong despite the central bank’s biggest interest rate cut in history, a day before the company released its quarterly earnings.
“The size of the Fed’s rate cut yesterday signals the weakness of the current environment,” FedEx Chief Executive Officer Raj Subramanian told analysts on a conference call Thursday afternoon.
Investors seemed to be leaning toward Subramanian’s prospect of a rate cut on Friday morning, or at least the initial euphoria had faded. After hitting a record high the previous day, the S&P 500 (^GSPC) was down 0.43%, the Dow (^DJI) was down 0.38% and the Nasdaq (^IXIC) was down 0.44%.
FedEx executives blamed the company’s poor performance on inflation-squeezed customers’ unwillingness to pay higher prices for priority shipping. Subramanian also blamed a “weaker industrial economy” for less demand for B2B services, or shipping between companies and manufacturers. FedEx is also ending its contract with the U.S. Postal Service. Subramanian said the company expects to lose $500 million as a result of the end of the partnership.
Subramanian said the company will continue its aggressive cost-cutting efforts and expects to save $4 billion in the next fiscal year.
Stevens & Co. analyst Daniel Imbro offered some hope for FedEx’s future in an interview with Yahoo Finance on Friday morning: “We’ve been recommending buying in the $250 range because we think we have a pretty attractive risk-reward potential from these levels over the next 12 months.”
A FedEx driver makes a delivery, Friday, Oct. 14, 2022, in Boston. (Photo by Associated Press/Michael Dwyer) (The Associated Press)
But Oppenheimer analysts said they were taking a wait-and-see approach to FedEx’s cost-cutting efforts.
“As we continue to integrate our express and ground businesses through our Network 2.0 initiative, we expect it to demonstrate continued progress toward above-peak profitability across the company in a still-challenging operating environment,” the companies wrote in a note to investors on Friday morning.
Laura Bratton is a reporter for Yahoo Finance.
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