FedEx Corporation is facing significant turbulence as it reported disappointing earnings for the first quarter, causing its stock to plummet more than 15%—a drop not seen since 2022. The report not only triggered concerns among investors but also drew sharp criticism from analysts who described the results as worrying.
On Thursday, the Memphis-based logistics giant disclosed its profit had decreased by approximately 26.9% year-over-year. This translated to earnings of $790 million, or $3.21 per diluted share, down from $1.08 billion, or $4.23 per share, during the same quarter last year. Notably, adjusted diluted earnings per share fell to $3.60, significantly less than the expected $4.43 by Wall Street analysts. Revenues, too, took a hit, slipping 0.5% from $21.7 billion to $21.6 billion, underlining the challenges FedEx is grappling with.
The company had anticipated these struggles, citing weak demand for its premium delivery services and increased operational costs, which were exacerbated by one fewer business day compared to the previous year. It attributed the revenue decline to what it termed as “a mix shift,” indicating customers are increasingly opting for cheaper, slower delivery options at the expense of priority services.
FedEx CEO Raj Subramaniam expressed disappointment but remained optimistic about the company's future, stating, "Despite a challenging quarter, we remain focused on transforming our network, improving our efficiency, lowering our cost-to-serve, and enhancing our ability to adapt with speed to the changing market dynamics." He emphasized FedEx’s commitment to cutting costs and improving performance to navigate these testing times.
The fallout from the earnings report was swift. Following the announcement, FedEx shares continued to decline, closing down 15.2% at $254.64, with some stocks even hitting session lows of $253.51. The poor performance also cast shadows on rival companies like United Parcel Service (UPS) and DHL, which saw their stocks dip by approximately 2.7% and 4.4% respectively, as investors worried about the broader market conditions affecting delivery and logistics.
Adding to the gloomy financial outlook, FedEx revised its full-year earnings forecast downwards. Previously projecting adjusted operating income of $20 to $22 per share, FedEx has lowered this expectation to between $20 and $21 per share. Susquehanna analyst Bascome Majors noted, "This marks the third disappointing first-quarter announcement from FedEx over the past four years," emphasizing the company’s struggle to recover from the cost overruns incurred during the pandemic-era boom.
Analysts are now left with mixed sentiments. While crediting FedEx for its successful restructuring efforts aimed at achieving savings of up to $4 billion by 2025—primarily through initiatives like its Drive transformation program—many remain skeptical. BofA Global Research made the largest cut to FedEx’s stock price target, reducing it from $345 to $308, highlighting the company’s lost credibility following this dismal performance.
This drop can be viewed as just one more chapter in FedEx's continuing saga of grappling with adapting to the post-pandemic economic environment. Where online buying surged during COVID-19 lockdowns, it seems many consumers have shifted back to more economical pricing, affecting FedEx’s expedited shipping services.
FedEx is not alone on this rocky path; every logistic player is feeling the strain as customer spending habits evolve. The industry's biggest question now is how long FedEx will take to rebalance its offers to suit changing consumer needs and regain investor confidence.
