FDX
FedEx shares are down a whopping 23% in morning trading after the company announced its fiscal first quarter results that lagged investors’ expectations. Management also withdrew its forecast for the year after new Chief Executive Officer Raj Subramaniam said that FedEx was experiencing worsening business conditions. The package delivery behemoth is also underperforming the S&P 500 for the year, with shares down 39%, versus the 19% decline in the benchmark.
Management also announced during the earnings report that it would take immediate steps to cut costs, closing over 90 of its approximately 200 office locations, cutting staff, parking aircraft, and cancelling projects. CEO Subramaniam likewise stated that the global economy was on the verge of entering a recession. Global freight demand, a key indicator of economic health, has plunged throughout the year, affecting FedEx’s business prospects. Subramaniam highlighted the European and Express businesses particularly as lagging areas in the company’s performance.
Adjusted loss per share for the first quarter came in at $3.44, versus the average analyst expectation of a profit of $5.10 per share, and $4.37 from the year ago period. Total preliminary revenue reported by the firm was $23.2 billion, climbing 5.4% from the same time in 2021, but lower than the Wall Street’s expectations of revenue of $23.5 billion. Adjusted operating income fell to $1.23 billion against the anticipated $1.75 billion.
Management’s cost cutting moves also meant a reduced forecast for capital expenditure for the year by $500 million to $6.3 billion. FedEx’s quarterly dividend payment will be maintained at $1.15 per share, for a total of $4.60 on an annualized basis. Based on the last trade price of the shares of $157.80, the dividend yield works out to a robust 2.9%. Despite the dividend yield, FedEx is still struggling against certain industry-wide issues and increasing earnings sustainably in the current environment could prove challenging.
The company is dealing with higher logistics costs, higher freight costs due to increased oil prices, and elevated labor costs for its roughly 600 thousand employees globally. The company is dealing with stiffer competition from UPS, USPS and relatively new entrant, Amazon logistics as well. Last-mile delivery in the U.S. market has especially become more competitive with couriers struggling to adequately predict and manage demand surges from e-commerce partners. FedEx has lagged competitor UPS and the broader market over the trailing 52-week period.
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