FedEx dives after quarterly profit miss, annual revenue forecast cut
FedEx's operating income for its air-based Express unit dropped 60% during the quarter
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Shares of FedEx fell about 10% in trading before the bell on Wednesday, a day after the parcel delivery firm missed expectations for quarterly profit and trimmed its revenue forecast for the fiscal year.
Volatile macroeconomic conditions and lower demand from the U.S. Postal Service, which has been shifting more packages from higher-margin air services to more economical ground services, dealt a blow to the company's largest Express business.
Operating income for its air-based Express unit dropped 60% during the quarter as a result.
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"Although, FedEx maintains a strong service commitment to the USPS, they are losing money in the business. We expect them to walk away from the business next year when the contract expires," TD Cowen analyst Helane Becker said in a research note.
However, FedEx is currently negotiating a renewal of the post office contract with the goal of improving profitability from the business, the company said in an earnings conference call.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| FDX | FEDEX CORP. | 296.75 | -5.99 | -1.98% |
The global parcel giant's adjusted earnings for the quarter that ended Nov. 30 jumped 23%, to $1.01 billion, or $3.99 per diluted share. But the result fell 19 cents per share short of analysts' average estimate, according to LSEG data.
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The company also expects a low-single-digit percentage decline in its annual revenue from last year, compared with its prior forecast of roughly flat results.
"We believe new investor interest in the parcel group will remain muted, especially if recent volume weakness persists and rekindles concerns of price competition," JPMorgan analyst Brian Ossenbeck said in a research note.
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"We expect FDX will give back the majority of its (share) gains it racked up this month," Ossenbeck said. As of Tuesday's close, FedEx shares had risen 6% in December.
Shares of FedEx trade about 14 times forward profit estimates, below rival UPS's 16.7 multiple.