Low quarterly revenue prompts FedEx to cut sales forecast, warns of global recession

FedEx's quarterly revenue gives warning of a global recession
FedEx's quarterly revenue gives warning of a global recession

Image source: NTD

On Friday, FedEx noted global parcels were down, prompting the company to warn of a possible global recession.

Company shares

FedEx (FDX) shares fell 21% on Friday, marking the biggest one-day loss in the company’s history.

FedEx also warned late Thursday that a slowing economy would push the company $500 million below its revenue target.

The slowdown in the global economy, particularly in Asia and Europe, has dealt a serious blow to FedEx’s courier business.

The company said demand dropped significantly in the final weeks of the quarter.

FedEx also said it expects further easing of trading conditions in the current second quarter, which will last through November.

The company expects global sales for this quarter to be flat year-over-year, with earnings guidance up more than 40%.

Meanwhile, analysts expect earnings to rise.

Global recession prediction

FedEx CEO Raj Subramaniam was asked in an interview with CNBC on Thursday if he thought the company’s slowdown was a sign of the start of a global recession.

“I think so,” he said. “These numbers, they don’t portend very well.”

Subramaniam also said the company is seeing a decline in the volume of cargo it handles in all regions of the world.

As US consumers are reassured by the strength of the dollar, which has impacted purchasing power, the CEO of FedEx said he sees US spending slowing down.

Stock market movement

The warning triggered a sell-off in US stocks.

The Dow Transportation index fell 5%.

Meanwhile, UPS shares closed down about 5%.

At FedEx, the 21% one-day loss outweighs the 16% decline during the 1987 stock market crash and the 15% drop in stock sales in March 2020.

So far in 2022, FedEx shares are down 38%.

FedEx responds

FedEx is responding to the loss with a number of actions.

The company will operate as follows:

  • Reduce flights and temporarily park aircraft
  • Trim hours for the staff
  • Delay hiring plans
  • Close 90 FedEx Office locations and five corporate office
  • Cut $500 million from capital expenditure budget for fiscal year until May 2023

“We’re going fully into cost-management mode,” said Subramaniam.

Quarterly revenue

FedEx reported adjusted earnings for the quarter (ending Aug. 31) would be down 17% ($260 million) year over year.

The company’s revenue also rose 5% ($1.2 billion), although the company missed its previous target.

FedEx issued a sharply lowered outlook for the quarter and said it would withdraw its full-year guidance beginning in June, citing “continued volatile operating environment.”

Delivery service

FedEx Ground Service, the primary way they handle deliveries, missed its $300 million sale.

The company relies on independent contractors for deliveries, and many of them complain that rising costs for fuel, labor and new vehicles are making their business unprofitable.

Some contractors are threatening to suspend Black Friday operations unless FedEx agrees to change their compensation.

The company insists it will work with struggling entrepreneurs.

FedEx previously sued a former contractor who harshly criticized the company.

“We recognized that current economic conditions are posing new challenges,” FedEx Ground said in an August statement.

“We remain committed to working with service provider businesses individually to address the challenges specific to their situation.”

“Our goal is to enable success for both FedEx Ground and service providers,” the statement added.

More than 1,000 of the 6,000 contractors who worked for the company joined a trade association to campaign for better pay at FedEx.

An Associated Releases survey found that 54% of businesses that work with FedEx have lost money. 35% said it broke even, while only 11% said it was profitable.

The association’s survey reached more than 1,200 people who had worked or left the company in the past 12 months.

Reference:

FedEx warns of a global recession, cutting sales forecast by half a billion dollars


Opinions expressed by The Chicago Journal contributors are their own.

Claire Peterson

Claire is a freelance writer and environmentalist whose main topic is all about nature, health, lifestyle, music and travel. She's an outspoken person and joins groups and organizations that protects the animal rights and advocate of nature.

Leave a Reply

Your email address will not be published.