- Q1 earnings expected to fall well short of expectations
- Weakness in global economy expected to worsen
- Cost cutting measures taken to mitigate drop in demand
Shares of economic bellwether FedEx (FDX:NYSE) slumped 12% in after-hours trading on Thursday after the company issued a huge profit warning and withdrew guidance for 2023.
The warning sent US markets lower overnight with the S&P 500 dropping 1% and futures indicating further weakness on opening later today.
The weakness followed through into Asia and Europe with Japan’s Nikkei down 1% and the German Dax index slumping around 2% by mid-morning.
WEAKENING GLOBAL ECONOMY
FedEx said revenues for the first quarter to the end of August are expected to be $23.2 billion, missing estimates of $23.5 billion while EPS (earnings per share) is anticipated to be $3.44, around a third below consensus estimates.
The company pinned the blame on softening volumes in Asia and service challenges across Europe which led to a $500 million revenue shortfall compared with the firm’s expectations.
CEO Raj Subramaniam commented: ‘Global volumes declined as macroeconomic trends significantly worsened later in the quarter, both internationally and in the US.
‘We are swiftly addressing these headwinds, but given the speed at which conditions shifted, first quarter results are below our expectations.’
COST CUTTING
FedEx expects conditions to worsen in the second quarter and is calling for EPS of $2.75 or greater, falling well short of analysts’ forecasts of $5.46.
To offset anticipated weakness the company plans to cut flight frequencies, reduce labour hours, and close over 90 office locations. The firm is also taking the knife to planned capital expenditures, cutting 2023 spend by $500 million to $6.3 billion.
There was a knock-on effect on fellow transportation group UPS (UPS:NYSE) with the shares falling 7% after hours while in London, Royal Mail (RMG) shares dropped 10%. FedEx shares have lost 21% year-to-date compared with 16% for S&P 500.
