FedEx shares took a nosedive, plummeting over 10% in premarket trading on Wednesday, following the company’s decision to revise its revenue forecast downwards due to weakened demand impacting sales.
The package delivery giant now anticipates a low-single-digit decline in revenue for the fiscal year, a significant adjustment from its previous projection of flat sales year-over-year. This revision came as a surprise to analysts, who had predicted a more modest decrease of less than 1% for the current fiscal year, as reported by LSEG (formerly Refinitiv).
This marks the second consecutive quarter in which FedEx has adjusted its sales outlook, reflecting the persistent challenges the company faces in the current market. Particularly affected was FedEx’s Express unit, its largest division, which experienced decreased demand, surcharges, and a shift in customer preferences towards more affordable services.
Looking ahead to the remainder of fiscal 2024, FedEx anticipates ongoing pressure on revenue due to volatile macroeconomic conditions, which are dampening customer demand across its transportation businesses. Despite this, the company remains optimistic about its operating income, citing a cost-cutting plan that is expected to drive improvements.
FedEx’s financial performance fell short of Wall Street’s expectations, with adjusted earnings per share at $3.99 compared to analysts’ forecast of $4.18, and revenue at $22.17 billion, below the expected $22.41 billion.
For the three-month period ending November 30, FedEx reported a net income of $900 million, or $3.55 per share, compared to $788 million, or $3.07 per share, in the previous year. After adjusting for certain items, the company’s earnings stood at $1.01 billion, or $3.99 per share, representing a more than 25% increase from the previous year but still falling short of analyst forecasts.
Despite the revenue decline of 3% to $22.17 billion from the previous year, FedEx highlighted its cost-cutting initiatives as a driving force behind its improved profitability. CEO Raj Subramaniam emphasized the company’s ability to achieve consecutive quarters of operating income growth and margin expansion, even in the face of lower revenue, as evidence of FedEx’s progress in its ongoing transformation amidst challenging market conditions.
The revised outlook and lower-than-expected financial performance have raised concerns about FedEx’s ability to navigate the current economic landscape effectively. As the company continues to grapple with evolving market dynamics, investors and analysts will be closely monitoring its strategies to sustain growth and profitability in the coming quarters.
(Source: Bloomberg | Barron’s | CNBC)
