FedEx saw a drop in its shares during after-hours trading in New York on Tuesday (Dec. 17), with shares dipping 6.5 percent to $152.62. The drop came on the heels of the delivery giant cutting its earnings forecast for the second straight quarter, reports said.
The company also posted fiscal Q2 earnings results, missing earnings expectations as a result of weak international economic demand hurting sales, and ramped up courier investment challenges in handling the rise in eCommerce deliveries this holiday season. Adjusted earnings will be no more than $11.50 per share in the fiscal year ending in May, down from the previous expectation of as much as $13, FedEx said in a statement.
Deutsche Bank Analyst Amit Mehrotra said the courier delivery service company’s fiscal Q2 results were “breathtakingly bad,” according to Bloomberg, with weakness in both its air cargo business and ground delivery unit.
“Earnings appear to be in free fall, with seemingly little clarity being provided by management as to the duration of the current downturn, and drivers of recovery,” he said. “We’d characterize these numbers as weaker than even the most bearish estimates.”
FedEx advanced 1.2 percent this year through Tuesday, sweeping behind UPS’ 23 percent gain and a 27 percent increase for the S&P 500 Index.
Pressure mounts as Fred Smith, CEO of FedEx, is faced with ongoing company disruptions, driven by growth in online shopping and Amazon. The eCommerce giant recently cut off FedEx Ground for Prime shipments this holiday. Amazon stated in a letter to all of its sellers on Sunday (Dec. 15) that third-party merchants will no longer be able to use the FedEx Ground delivery network this holiday season, due to the delivery courier service company being too slow.
The eCommerce giant’s rising power over how products get delivered to customers is weighing heavily on FedEx’s sales. Amid suffering from weak pricing, U.S. trade tensions and the timing of Thanksgiving in America hurt its business as well.
According to an average of estimates compiled by Bloomberg, FedEx’s adjusted second-quarter earnings fell to $2.51 per share, missing the $2.78 target. Sales were down 2.8 percent to $17.3 billion. Last quarter, operating profit plummeted for the company to 3.9 percent of sales from 7.5 percent a year earlier, trailing its long-term goal of 10 percent operating margins.
Smith called FedEx’s results an “anomaly” due to the holiday shipping activity, which was shortened last quarter, as well as the higher costs to change operations at the ground unit. He added that margins for the division — falling to 6.4 percent last quarter from 11.5 percent the previous year — “would rebound to the teens by the quarter ending in May.”
“We remain highly confident in our strategies, which we believe will begin to bear fruit by our fourth fiscal quarter,” Smith said on a call with analysts.