Dec 19- FedEx (FDX.N) slashed its full-year revenue forecast and reported quarterly profit that fell far short of analysts’ targets on Tuesday, sending its shares tumbling 9.8 percent as its largest express business saw demand from the U.S. Postal Service decline.
Shares in the global delivery company fell to $252.58 in extended trading, after closing at $280 on Tuesday. The results also dragged down shares in rival United Parcel Service (UPS.N) by 2.9 percent.
FedEx said adjusted earnings for the quarter ended 30 November rose 23% to $1.01 billion, or $3.99 per diluted share. But the result fell 19 cents per share short of analysts’ estimates, according to LSEG data.
“We expect revenue to continue to be pressured by volatile macroeconomic conditions that negatively impact customer demand for our services across all of our transportation businesses” for the remainder of the fiscal year ending 31 May, FedEx said in a regulatory filing.
FedEx now expects a low single-digit percentage decline in revenue compared to last year, compared to its previous forecast of roughly flat results.
In a nod to investors who have pressured the company to cut costs and improve profits, FedEx said it expects to repurchase an additional $1 billion of common stock in fiscal 2024.
Operating profit at the company’s air-based express unit fell 60% in the quarter. This was partly due to declining volume from the US Postal Service, which has shifted more parcels from higher-margin air services to lower-cost ground services.
FedEx is negotiating a renewal of its contract with the Postal Service to improve the profitability of the business. “It’s going to take a pretty significant change in the terms of the contract and the agreement to renew that,” Brie Carere, FedEx’s chief customer officer, said on a conference call with analysts.
Analysts pressed the company on how it plans to meaningfully improve the stubbornly low profitability of its express business.
“Is the margin profile here fixable?” asked Bernstein analyst David Vernon, who said he was echoing investor concerns.
“I’m very confident that the margin in Express will return” after the company restructures those operations and demand returns, said FedEx CEO Raj Subramaniam.
Elsewhere, operating profit at FedEx’s Ground division, known for delivering packages for Walmart (WMT.N) and other customers, rose 51% in the quarter.
FedEx said Ground gained market share during the quarter and retained virtually all of the customers it poached from United Parcel Service ahead of the August 1 expiration of the contract covering UPS’s 340,000 United Brotherhood of Teamsters employees.
“I’m confident we’re going to keep them,” Carere said.
The call came amid the crucial holiday shipping season, which runs from late November through Christmas and is shaping up to be lackluster this year as consumers grapple with inflation and higher costs for housing, food and other necessities.
