FedEx warns of global recession, cuts sales forecast by half a billion dollars

New York
CNN Business

FedEx has warned of the possibility of a global recession, as demand for parcels drops worldwide.

FedEx (FDX) shares fell 22% early Friday afternoon after the company warned late Thursday that a slowing economy would send it $500 million below its revenue target. Weak global economy, especially in Asia and Europe, has hurt FedEx Express (FDX) business. The company said demand for packages dwindled significantly in the final weeks of the quarter.

FedEx said it expects business conditions to weaken further in the current second quarter, which runs through November. While global revenue for this quarter is likely to be flat compared to the previous year, FedEx earnings are expected to decline more than 40%. Analysts had expected a profit gain.

During an interview Thursday on CNBC, FedEx CEO Raj Subramaniam was asked if he thought the slowdown in his business was a sign of the start of a global recession.

He replied, “I think so.” “These numbers, they don’t bode well.”

He said FedEx is seeing a reduction in the volume of shipping it handles in every region around the world. While he said US consumers are somewhat shielded by the strength of the dollar, which increases their purchasing power, he said FedEx is seeing a slowdown in Americans’ spending as well.

The warning sparked a massive sell-off in US stocks, with all three major indexes down more than 1% in FedEx news. The Dow Transportation Index is down nearly 6%, while shares of FedEx rival UPS (UPS) are down 5%.

If FedEx shares close near a 22% drop as of afternoon trading, it will be the worst one-day drop in history – outstripping the 16% stock drop on the day of the 1987 stock market crash, and a 15% drop during the stock sale – March 2020 In the early days of the epidemic. FedEx shares are now down 38% so far this year.

The company said it is responding by reducing flights and pausing planes, reducing the hours of its employees, delaying some staffing plans and closing 90 FedEx office locations as well as five corporate offices. It also cuts $500 million from the capital spending budget for the fiscal year, which runs through May 2023, reducing that spending to $6.3 billion.

“We’re fully on our way to cost management mode,” he told CNBC.

FedEx (FDX) said its adjusted profit for the quarter ended August 31 will be $260 million, or 17%, down from a year earlier. Revenue rose $1.2 billion, or 5%, despite the company’s previous target not being met.

While it gave sharply lower guidance for the current quarter, FedEx said it withdrew its full-year guidance issued in June due to “the continuing volatile operating environment.

FedEx Ground, the company’s primary way of handling online purchase deliveries made by American consumers, has missed its $300 million sales target.

The company uses independent contractors, not employees, to make deliveries, and many of these contractors complain that rising fuel, labor and new vehicle costs have made their business unprofitable. Some are threatening to halt operations on Black Friday, at the start of the holiday shopping season, unless FedEx agrees to change their compensation.

FedEx insists it will work with contractors who are experiencing problems. I sued the former contractor who was the company’s most vocal critic.

“We recognize that current economic conditions pose new challenges,” FedEx Ground said in a statement last month. “We remain committed to working with service providers individually to address the challenges of their situation. Our goal is to enable success for both FedEx Ground and service providers.”

About 1,000 of the 6,000 contractors working for FedEx have joined a trade association to pressure the company for better compensation.

An association survey released this week found that 54% said their FedEx business was losing money, 35% said it was a break even, and only 11% said it was profitable. The association said that the survey reached 1,200 contractors who worked for the company or left the company in the past 12 months.

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