Decline in global trade has caused FedEx to adjust its earnings forecast resulting in its stock plummeting. Slow growth internationally was blamed on economic conditions with Brexit and U.S. tariffs being the focal point. In response, FedEx has announced new cost reduction initiatives to address the lower-than-expected performance.
Despite this, total revenue, for the three months ended November 30, rose to $17.8bn representing an increase of 9.3% in comparison to the previous year period. This was attributable to growth in all business segments, with particular gains in its Ground and Freight business segments growing by 13.6% and 14.6% respectively.
Operating income was up by 4.8% for the quarter due to the higher volumes, increased yields and a favourable net impact of fuel at all transportation segments. However, operating results for FedEx Express were negatively impacted during the quarter with international revenue underperforming in Europe and Asia. The segment was also hindered by higher growth in lower yielding services across the network and the timing of aircraft maintenance events.
In a conference call with analysts, Chairman and CEO Frederick Smith, said: “most of the issues that we’re dealing with today are induced by bad political choices,” in reference to Brexit and U.S. tariffs amongst others. This has put pressure on trade and has limited the company’s expansion of its international business.
The news of the adjusted forecast resulted in FedEx’s stock falling by over 10% adding to the 33% fall it has seen since the start of the year. Smith’s macroeconomic outlook had a damaging effect on FedEx’s rivals, with UPS’s stock dropping by almost 4%.
In an attempt to mitigate the below-plan performance, FedEx is introducing cost-reduction actions in addition to lowering variable compensation. These include a voluntary buyout programme for eligible employees, international network capacity reductions at FedEx Express, limited hiring in staff functions and reductions to discretionary spending.
As a result, FedEx is now forecasting earnings of $12.65 to $13.40 per diluted share before year-end MTM retirement plan accounting adjustments. This is down from the prior forecast of $15.85 to $16.45 per diluted share.
Source: FedEx
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