FedEx loses ground after divorce from Amazon
Delivery service cuts profit forecast for 2020
FedEx is trying to reshape its business after a tough year, but Q2 results show it is still a long way off.
FedEx on Tuesday warned of a decline in fiscal 2020 profit as the corporation spent a lot of money to launch Sunday shipments in time for the holidays. But the ongoing tariff war has held back global trade, plus FedEx is facing the fallout from Amazon.com..
FedEx shares dropped 6.5% to $ 152.6 after the company said late Thanksgiving brought Cyber Monday revenue to December, impacting quarterly results.
«Our hopes for a recovery and trade growth, voiced last June, were simply dashed by the trade war», – said Frederick Smith, Founder and CEO of FedEx.
The Memphis-based company said its weaker-than-expected results were due to poor global economic conditions, increased FedEx Ground costs due to expanding service offerings, loss of business due to the departure of a large client, continued transition to lower-income services, and more competitive pricing environment.
FedEx’s fiscal second quarter adjusted net income fell 38.9% to $ 660 million, or $ 2.51 per share. This is inconsistent with analyst average earnings estimates of $ 2.76 per share, according to data provided by IBES from Refinitiv..
Operating margin for FedEx Ground fell to 6.4% from 11.5% a year ago, mainly due to the cost of adding Sunday or 7-day shipping.
Airplane-focused express express delivery service saw operating margin fall to 2.6% from 6.6% a year ago after weak industrial production contributed to lower business activity in commercial business.
In September, FedEx cut its earnings forecast for the fiscal year ending May 2020 from $ 11 to $ 13 per share. On Tuesday, the company cut that figure to 10.25–$ 11.50 per share, citing missed revenue targets across all shipping segments and higher shipping costs to your home.
This holiday season is six days shorter than last year, putting pressure on parcel delivery firms as retailers demand faster deliveries.
Sriram Sridhar, CEO of LateShipment.com, which tracks last mile delivery, says data from customers suggests FedEx lags behind rivals United Parcel Service Inc in on-time performance in major cities such as Los Angeles. Seattle, Boston and New York.
Up to 15% of FedEx ground shipments are delayed in some of the hardest hit areas, Sridhar said, predicting that by the end of the season FedEx could have 1-2% more delays than UPS..
Amazon this week temporarily banned some third-party sellers from using FedEx’s ground delivery network to handle basic shipments as the online retailer seeks to reduce delivery times. FedEx terminated contracts this summer with Amazon, which is building a rival logistics network.
FedEx criticized the move in a statement to FOX Business, noting that the move «affects a very small number of shippers», but «limits the ability for those small businesses to deliver some of the highest-demand delivery days in history and may compromise their ability to meet customer demands».
FedEx CEO Frederick Smith said the company saw «incredible response» customers on the growth of delivery services for six and seven days. However, investors will be difficult to convince. One analyst asked during a conference call why the company was not considering drastic measures to cut costs, such as laying off employees. Smith responded that he has confidence in the company’s ability to turn around and wants all of his resources to be available when that happens..
«We are disappointed with our current results, but we are optimistic», – summed up Smith.