FedEx, smarting from Amazon breakup and trade war, warns on profit

(Reuters) – FedEx Corp (FDX.N) on Tuesday warned that full-year earnings would miss analysts’ estimates, as escalating trade tensions pressure an already cooling global economy and it manages the fallout from its split with customer-turned-competitor Amazon.com Inc (AMZN.O).

FILE PHOTO: A Federal Express Ground truck travels down a highway through Carlsbad, California, U.S., September 16, 2019. REUTERS/Mike Blake

Shares of the package delivery company tumbled almost 10% in after-hours trading after profit in its latest quarter also fell short of Wall Street’s goal.

The results from Memphis-based FedEx land as global retailers are gearing up for the all-important winter holiday season.

“This is very disappointing for all shareholders,” said Trip Miller, managing director at Memphis-based hedge fund Gullane Capital Partners.

While FedEx has its own challenges, the company is a bellwether of the global economy and the broader logistics sector. Shares of rival United Parcel Service Inc (UPS.N) fell 2.6% after the report.

FedEx said it expects adjusted 2020 earnings of $11.00 to $13.00 per share. Analysts on average had expected a profit of $14.69 per share, according to Refinitiv IBES estimates.

In June, FedEx had forecast a mid-single-digit percentage point decline in adjusted earnings for fiscal 2020.

As the Sino-U.S. trade war continues, the shipper has become the target of Chinese ire over shipping mistakes involving several packages, including parcels addressed to China’s Huawei Technologies Co [HWT.UL], which Washington has put on an export blacklist.

Adjusted net income fell to $800 million, or $3.05 per share, in the fiscal first quarter ended Aug. 31, from $933 million, or $3.46 per share, a year earlier.

Revenue was flat at $17.05 billion.

Analysts on average had expected earnings of $3.15 per share.

“Our performance continues to be negatively impacted by a weakening global macro environment driven by increasing trade tensions and policy uncertainty,” Chief Executive Officer Frederick Smith said.

FedEx also said the “loss of business from a large customer” weighed on results. It previously downplayed the importance of the Amazon business, which FedEx said accounted for less than 1.3% of its revenue last year.

“Wow, you’re finally admitting that Amazon was actually a large customer,” said Cathy Morrow Roberson, founder of consulting firm Logistics Trends & Insights.

While global trade is down, she said, “I think a lot of it is a FedEx problem.”

FedEx is responding with a new round of cost cuts – including reducing services in its global FedEx Express air network after the holiday season, Chief Financial Officer Alan Graf said in a statement.

“We think their legacy Express Air segment is a bit pudgy right now,” said Miller, who added he would like to see FedEx redeploy resources to bolster its “ground game” that serves the growing e-commerce segment.

Shares of Fedex fell $16.78 to $156.70 in extended trading.

Reporting by Sanjana Shivdas in Bengaluru and Lisa Baertlein in Los Angeles; Editing by Shounak Dasgupta and Matthew Lewis

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source: reuters.com