Package delivery company FedEx Corp (NYSE: FDX) issued a knee-jerk profit warning and also withdrew its FY 2023 outlook, citing a gloomy economic scenario and a sharp decline in package volumes. The unexpected warning pushed the entire market into the red on Friday as FedEx is perceived as a bellwether of economic activity as it delivers a wide range of goods. The preliminary earnings report issued by the company missed estimates by a huge margin. The selloff took the stock to more than a two-year low of $161.02, down 21.40% or $43.85 from its prior close.
Memphis, Tennessee-based FedEx, which is scheduled to report earnings on September 22, issued a preliminary earnings report on Thursday evening. The company posted first quarter (fiscal 2023) revenues of $23.20 billion, up 5% from $22 billion last year.
For 1Q 2023, the company recorded earnings of $3.33 per share and adjusted earnings of $3.44 per share. In the comparable period of fiscal 2022, FedEx had reported earnings and adjusted earnings of $4.09 per share and $4.37 per share, respectively. Wall Street analysts were anticipating earnings of $5.14 per share on revenues of $23.58 billion.
FedEx stated that its first quarter results were severely affected by a worldwide decline in volumes that increased in pace in the last few weeks of the quarter. In particular, the FedEx Express division was affected by macroeconomic sluggishness in the Asia region and service-related issues in Europe. This led to a gap of $500 million between reported and forecast revenue for this segment. Likewise, FedEx Ground revenue was about $300 million lower than the company’s projections.
Looking ahead, the company expects 2Q 2023 revenues in the range of between $23.50 billion and $24 billion. Also, FedEx forecasts second-quarter earnings of $2.65 per share and adjusted earnings of $2.75 per share. Analysts surveyed by Thomson Reuters had anticipated the company to report earnings of $5.48 per share on revenues of $24.86 billion.
The company also withdrew its FY 2023 earnings outlook due to poor performance in the first quarter and anticipations of a volatile business environment. Earlier, FedEx had forecast FY 2023 adjusted earnings in the range of $22.50 to $24.50 per share. Analysts were expecting FY 2023 earnings of $22.29 per share.
FedEx also slashed its capital spending guidance for FY 2023 to $6.30 billion, from a prior outlook of $6.80 billion. However, the company stated that it would continue with its $1.50 billion share repurchase program, of which $1 billion worth of stock will be bought in the second quarter.
FedEx has clarified that it has taken proactive measures to realign its cost base. Still, the changes were not adequate to manage the sharp decline in volumes and high operational expenses in relation to demand.
The aforesaid initiatives include a decrease in flying aircraft and even parking them temporarily. Other cost-cutting measures include a reduction in labor hours, consolidation of certain operations, and a drop in Sunday operations. Furthermore, the company has carried out the cancellation of certain planned network capacity initiatives, postponed the staff hiring process, and closed nearly 90 FedEx offices. More such measures are being taken to improve operational efficiency.
Regarding the efforts taken, FedEx CEO Raj Subramaniam, who stepped into the shoes of founder Fred Smith in June, said, “We are aggressively resolving these impediments, but considering how quickly things evolved, our first-quarter earnings fell short of our projections.”
Shares of other logistics and even e-commerce firms, including UPS, XPO, and Amazon, were also battered on Friday.
The weak preliminary earnings, the withdrawal of FY 2023 guidance, and a downward revision of capital expenditure are expected to keep the stock of FedEx range-bound with a slight bearish bias for the next few trading sessions.
The historical price chart indicates that the stock of FedEx is declining after facing resistance at 220. The next support is anticipated only near 200. Additionally, the stock is trading below its 50-day moving average while the stochastics indicator is in the bearish zone. Therefore, we anticipate the stock to remain in a downtrend in the days ahead.
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