- First quarter sales and earnings miss
- 2025 profit guidance reduced
- Customers trading down to cheaper services
Investors often look to logistics giant FedEx (FDX:NYSE) for clues on the state of the US and global economy and the latest health check is not encouraging.
The company missed first quarter Wall Street earnings by a wide margin and lowered fiscal 2025 profit guidance, sending its shares down 12% in pre-market trading.
The news sent shares in rival United Parcel Service (UPS:NYSE) down 2.4%, while German-based DHL owner Deutsche Post (DHL:ETR) fell 3% in early trading.
WHAT DID THE COMPANY SAY?
FedEx CEO Raj Subramaniam said industrial demand was softer than expected and also referenced the Federal Reserve’s half a percentage point cut in interest rates this week (18 Sep), commenting: ‘The magnitude of the Fed rate cut yesterday signals the weakness of the current environment’.
Performance has been hampered by customers trading down from priority shipments to cheaper services and ongoing cost reductions were not enough to offset the weakness.
First quarter adjusted EPS (earnings per share) came in at $3.60, well shy of consensus estimates looking for $4.77 while revenue of $21.6 billion also fell short of the $21.9 Wall Street was expecting.
For fiscal 2025 the company lowered EPS guidance by a dollar at the top-end of the range to between $20 and $21.
WHAT ARE THE EXPERTS SAYING?
Russ Mould, investment director at AJ Bell, commented: ‘The pressure on profitability shows FedEx is still a way off rightsizing its cost base after expanding rapidly to meet extra demand during the pandemic, when demand for shipping increased rapidly.
‘The company is continuing to buy back shares in an effort to win investors over. However, this disappointing release, coming just a few months after raising its 2025 guidance, will do little for management’s credibility and will leave shareholders craving consistency.
‘It will also ramp up the pressure for more radical changes at the business, with directors assessing whether now might be the time to get rid of its FedEx freight business.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Martin Gamble) and the editor (James Crux) own shares in AJ Bell.
