'The magnitude of the Fed rate cute yesterday signals the weakness of the current environment,' CEO says
Shares of FedEx Corp. tumbled after hours on Thursday after the package-delivery giant tempered its full fiscal-year outlook, citing "weaker-than-expected" shipping demand as businesses worldwide remain cautious on the economy.
FedEx (FDX) reported the results as retailers, customers and the people who ship things to their doorsteps gear up for the holiday shopping season, and after the Federal Reserve a day earlier leaned on the aggressive site in cutting interest rates in an effort to juice borrowing and spending.
But even as prices rise less aggressively than they did two years ago, they're still high and keeping shoppers cautious on what they buy - and what they get delivered.
"The magnitude of the Fed rate cute yesterday signals the weakness of the current environment," Chief Executive Raj Subramaniam said on FedEx's earnings call.
"We're not assuming a significant comeback in the industrial environment in the rest of this calendar year," he continued. "We're cautiously optimistic that industrial production will moderately improve in the second half. But we are dialing in pretty low growth expectations at this point because of the environment we are seeing."
He said trends in e-commerce and global trade had rebounded modestly. But he said that more customers had shifted that the company was "focused on what we can control."
And after FedEx last week said it would bump its prices 5.9% higher starting in January, Subramaniam on Thursday said more customers were opting for their cheaper services, and shifting away from its priority services.
Shares fell 11.2% after hours. The stock was up 14.7% over the past year as of Thursday's close.
FedEx (FDX) said it expects "low-single-digit percentage" sales growth for its fiscal 2025, which is set to conclude around the end of May. That's a bit less optimistic than an earlier forecast for "low- to mid-single-digit" percentage growth.
The company also said it expects adjusted earnings per share of $20 to $21 for the year, compared with a prior outlook for $20 to $22 a share.
With delivery demand still weak thanks to a two-year run-up in prices for essentials, FedEx has laid out plans to cut billions in costs over the next few years, laying off staff and reorganizing or scaling back operations. However, some analysts have wondered whether the easiest cuts are already in the rearview.
FedEx said Thursday that higher operating costs weighed on its results during its fiscal first quarter.
Still, FedEx executives were upbeat despite what they called a "challenging quarter."
"Our revised outlook reflects our continued confidence in the execution of our DRIVE initiatives and the effects of our recent pricing actions, which we expect to help offset weaker-than-expected demand trends," FedEx Chief Financial Officer John Dietrich said in a statement. DRIVE is the name of FedEx's cost-cutting initiative.
FedEx reported fiscal first-quarter net income of $790 million, or $3.21 a share, down from $1.08 billion, or $4.23 a share, in the same quarter last year. Adjusted for "business-optimization costs," FedEx earned $3.60 a share in the period. Revenue slipped to $21.6 billion for the quarter.
Analysts polled by FactSet expected FedEx to report adjusted earnings per share of $4.75, on revenue of $21.87 billion.
In June, FedEx said it expected better demand for the fiscal year ahead. But it also said it had placed its freight business under review. That business, which had $9 billion in revenue in FedEx's last fiscal year, handles smaller shipments from multiple businesses. Executives on Thursday said that review process was on track to be finished by the end of the calendar year.
The U.S. Postal Service, a big air-cargo customer, will also stop working with FedEx on Sept. 29. FedEx on Thursday said it expected a $500 million "headwind" from the ending of the contract between the two.
Dietrich, during the call, said shipping volumes overall during the quarter were strong. And he said that winding down the contract with the Postal Service would give FedEx more flexibility to develop its delivery network.
"But again, you're talking about a large network," he said. "It's tough to flip a switch, if you will."
-Bill Peters
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