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By
Reuters
Published
Dec 19, 2018
Reading time
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FedEx cuts 2019 earnings forecast on economic slowdown

By
Reuters
Published
Dec 19, 2018

U.S. package delivery company FedEx Corp on Tuesday cut its 2019 forecast after Europe’s economy weakened and the U.S. trade skirmish exacerbated a slowdown in China, sending its shares tumbling as much as 6 percent in after-hours trade.

FedEx profit rose almost 21 percent to $935 million, or $3.51 per share, for the second quarter ended Nov. 30, as its U.S. business remained strong - Reuters


“Global trade has slowed in recent months and leading indicators point to ongoing deceleration in global trade near-term,” FedEx Chief Financial Officer Alan Graf said.

Executives pointed to flashing signs around the world, including a sharp UK slowdown due to Brexit uncertainty, Germany’s recent gross domestic product contraction, “yellow vests” unrest in France that threatens to spread to nearby nations and a cool down in Asia.

FedEx is a bellwether for the global economy and the results fueled concern that the United States may catch the “cold” affecting other regions, said Trip Miller, managing partner at Memphis-based Gullane Capital.

“This confirms a lot of market fears ... and is probably why the (stock) market has been off so much,” said Miller.

The tempered outlook landed as FedEx grapples with ongoing margin pressure at its Express and Ground units and speculation that Amazon.com Inc will attack its own mounting transportation costs by investing in a competing delivery network - a concept FedEx executives described as “fantastical”.

Its new forecast assumes moderate U.S. domestic economic growth and no further weakening in international economic conditions from the current forecast, FedEx said.

“While the U.S. economy remains solid, our international business weakened during the quarter, especially in Europe. We are taking action to mitigate the impact of this trend through new cost-reduction initiatives,” Frederick Smith, FedEx chief executive officer, said in a statement.

FedEx said it is offering voluntary buyouts to certain employees, reducing international capacity at FedEx Express, limiting hiring and cutting discretionary spending. It is also reevaluating its capital spending plans and share buybacks.

Memphis-based FedEx cut its fiscal 2019 earnings forecast to $15.50 to $16.60 per share, before year-end mark-to-market retirement plan accounting adjustments and excluding TNT Express integration expenses.

It previously forecast earnings of $17.20 to $17.80 per share.

“We remain committed to actively managing costs with a heightened focus on increasing efficiency across the organization,” Graf said.

FedEx profit rose almost 21 percent to $935 million, or $3.51 per share, for the second quarter ended Nov. 30, as its U.S. business remained strong.

Revenue rose to $17.8 billion from $16.3 billion.

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