Investors are rapidly offloading shares of FedEx, causing a $7.68 billion loss in company value after the company trimmed its full-year sales forecast, stirring concerns about subdued shipping demand throughout the peak holiday season.
FedEx's shares plunged nearly 11 percent on Wednesday morning after the logistics giant announced earnings, revising its revenue outlook, and projecting a low-single-digit decline for the fiscal year, which marked a change from its previous forecast of flat year-over-year sales.
FedEx investors, expecting a less than 1 percent drop in revenue for the current fiscal year, were taken back by the company's revision. This marks the second consecutive quarter where the company has had to downgrade its sales outlook, with its Express unit—FedEx's largest—facing particular challenges "driven by market contraction and lower fuel and demand surcharges," according to FedEx chief customer officer Brie Carere.
The company said in a statement that for its fiscal year ending May 31 of next year, it expects its revenue to continue facing pressure due to macroeconomic conditions which are negatively affecting customer demand across its transportation companies.
However, FedEx also said it expects an improvement in overall operating income thanks to an ongoing cost-cutting plan which includes $115 million saved this quarter through strategic reductions in flight operations and other efficiencies. Additionally, FedEx CEO Raj Subramaniam told investors during its earnings call that it has achieved over $100 million in savings by cutting back on temporary labor, securing more competitive transportation rates, optimizing benefit programs, and reducing headcount.
The measures are part of FedEx's DRIVE initiative, which is "confidently" expected to deliver $1.8 billion in cost reductions for the fiscal year, Subramaniam said.
Newsweek has reached out to FedEx via email for comment.
By The Numbers
For the quarter ending November 30, FedEx reported a net income of $900 million, or $3.55 per share. After adjustments for certain specific factors, FedEx's earnings amounted to $1.01 billion, or $3.99 per share, which came short of the expectations set by market analysts.
The company credits its cost-cutting initiatives for the higher profit, even as revenue dipped 3 percent to $22.17 billion from a year earlier. "We are delivering much better profitability today than we have historically," Subramaniam said to investors during the company's earnings call on Tuesday, "in the quarter, we reduced costs by approximately $200 million in our surface network, including our U.S. Express operations."
Despite the disappointing revenue guidance, analysts believe the company is making strides in reducing costs, as evidenced by an improvement in its operating profit margin to 6.4 percent, a significant increase from the same period last year.
Analysts say a critical challenge for FedEx remains the performance of its internationally focused Express business, which primarily handles air shipments, as volumes in that division have continued to fall, impacting the overall profitability of the segment.
Many analysts, including those from giant investment banks like JPMorgan Chase and Raymond James have downgraded their price target for FedEx stock.
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