Most Read by Bloomberg In a potentially worrisome sign for the global economy, the package delivery giant noted weakness in Asia and challenges in Europe as it withdrew its previous outlook and reported preliminary results for the latest quarter that were well below Wall Street expectations. Conditions could deteriorate further in the current period, FedEx said. The company will take immediate steps to cut costs, including parking some aircraft, reducing employee hours and closing more than 90 of its approximately 2,200 FedEx Office locations. While US economic data is mixed, with employment and manufacturing lagging, companies across all industries are starting to paint a gloomier picture of the economy. Conditions in Asia and Europe also appear to be weighing on the US, where consumers are shifting spending towards travel and concerts and away from online shopping. FedEx stock fell 21% on Friday in New York, its biggest one-day drop since at least 1980. At $161.02, shares fell to their lowest level since July 2020. Simply put, it was a “bad quarter,” according to Robert W. Baird & Co. analyst. Garrett Holland. “Global freight demand has deteriorated significantly.” Analysts at Deutsche Bank AG went further, calling it “the weakest set of results we’ve seen relative to expectations” in nearly two decades of analyzing companies. FedEx’s announcement added to growing discomfort from companies across industries. The chief financial officer of General Electric Co. warned Thursday that the company is facing cash flow pressures amid supply chain disruptions, while industrial titans US Steel Corp., Alcoa Corp. and Nucor Corp. they have said that deliveries are decreasing. The CEO of McDonald’s Corp. said earlier this week that it expects a small recession in the US in 2023 and a more significant recession in Europe. The story continues Recalibrated expenditure At the same time, retailers such as Walmart Inc. and Target Corp. have lowered expectations as consumers recalibrate their spending. In August, containers arriving at Los Angeles – the busiest US port – saw their biggest drop since the early days of the pandemic, another sign that demand is easing. FedEx’s gloomy comments are a setback for its new CEO, Raj Subramaniam, who won investor support shortly after taking the reins in June by increasing the dividend, agreeing to revamp the board and laying out a multi-year plan to boost profits. Subramaniam must now steer the courier into a post-pandemic economy in which consumers spend more on services than discretionary purchases. Earnings, excluding certain items, for the fiscal first quarter were expected to be $3.44 per share, FedEx said in a statement late Thursday detailing preliminary results. That fell short of analysts’ average estimate of $5.10. Preliminary revenue of $23.2 billion in the period ended Aug. 31 narrowly missed expectations. What Bloomberg Intelligence Says: Freight stocks tumble after FedEx’s FY1Q announcement came in well short of expectations. There’s no doubt that global demand is moderating, but most of the headwinds FedEx faces are more company-specific. — Lee Klaskow, transportation analyst Click here to read the survey “Global volumes declined as macroeconomic trends worsened significantly later in the quarter, both internationally and in the US,” Subramaniam said in the statement. The news prompted a series of downgrades and price target cuts from Wall Street analysts. UBS AG analyst Thomas Wadewitz said the Express business was the main driver of the weak performance, although ground operations also missed estimates. “Express operating revenue was 75.8% below our forecast and ground operating revenue was 7.5% below our forecast,” Wadewitz said in a note to clients. “While we understand that Express is an asset-intensive business with a high fixed cost structure, we struggle to understand what elements could reduce operating income to the extent seen.” Most Read by Bloomberg Businessweek ©2022 Bloomberg LP
