FedEx cuts profit forecast again on economy, Express woes
today Mar 20, 2019
FedEx Corp on Tuesday cut its 2019 profit forecast for the second time in three months, sending its shares down more than 5 percent and fuelling fresh worries it is losing ground to delivery rivals such as United Parcel Service Inc and Deutsche Post DHL Group.
The profit warning and weak quarterly results were another blow to FedEx, which slashed its forecast in December citing a sharp downturn in worldwide trade.
The package delivery industry is widely seen as a bellwether for the global economy.
“Slowing international macroeconomic conditions and weaker global trade growth trends continue,” FedEx Chief Financial Officer Alan Graf said in a statement on Tuesday.
Executives also blamed the results on the cost of launching year-round, six-days-per-week operations at FedEx Ground in the United States and continued weakness in its international Express business, which includes former Dutch delivery company TNT Express.
FedEx bought that struggling business in 2016 for $4.8 billion (3.6 billion pounds) and has had difficulties integrating it into its own network.
FedEx expects integration costs to exceed $1.5 billion and said in a regulatory filing that it will complete a project allowing packages to flow between the FedEx Express and TNT Express networks by the end of 2020, more than four years after acquiring the Dutch delivery company.
Adding to those challenges, a 2017 cyberattack on TNT’s European technology systems cost FedEx some $300 million to fix and sent a number of high-value, time-sensitive customers into the arms of stronger operators in Europe.
“It’s cutthroat over there,” said Cathy Morrow Roberson, founder of consulting firm Logistics Trends & Insights. “FedEx Express has some serious problems.”
Germany’s Deutsche Post DHL earlier this month said it saw no noticeable signs of a slowdown on the horizon, adding that its broad geographic and operational base would make it resilient even if global economic growth weakened.
Atlanta-based UPS has less international exposure than FedEx and said in January that U.S. results helped buffer the impact of global economic softening.
FedEx has shaken up management, including at its Express division, offered voluntary buyouts and limited discretionary spending to stem declines.
Profit for the fiscal third quarter that included FedEx’s peak holiday shipping and gift return season fell to $797 million, or $3.03 per diluted share, below analysts’ average estimate of $3.11 per share, according to IBES data from Refinitiv.
“It looks like UPS had a better holiday season,” said Morrow Roberson, who added that FedEx also pinned weakness in the quarter on costs related to leasing additional vehicles to handle volume spikes.
FedEx now expects to earn $15.10 to $15.90 for the 2019 fiscal year ended May 31. Analysts had predicted full-year fiscal 2019 earnings per share of $15.97, on average.
In after-market trading, FedEx shares were down 5.5 percent at $171.36.
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