(Bloomberg) — FedEx Corp. said its business would slow in the year ahead and reported a worse-than-expected quarterly profit in a warning sign about the direction of the US economy.
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The parcel giant was hurt by a pullback on priority services as customers traded down to cheaper shipping options in what Chief Executive Officer Raj Subramaniam called “a challenging quarter.” A broad effort to slash costs gained traction but only partially blunted those headwinds, the Memphis-based company said in a statement Thursday.
FedEx shares slid as much as 14% after the close of regular trading and were down 11% as of 5:43 p.m. in New York. Rival United Parcel Service Inc. also fell 2.8%.
The results spooked investors looking for signals about where the economy is headed after the Federal Reserve on Wednesday cut its benchmark interest rate for the first time since 2020. The policy shift reflects growing concern about the health of the labor market as job gains have slowed and inflation cools.
FedEx saw increasingly price-sensitive customers downgrading to slower and cheaper shipping options during its latest quarter, a trend that also hit UPS earlier this year. US domestic shipping volumes fell 3% at FedEx’s Express segment due to weaker business-to-business demand, Chief Customer Officer Brie Carere said on the company’s earnings call.
Expectations for higher revenue and profits from premium services in the US also failed to materialize, Chief Financial Officer John Dietrich said on the call.
“The sense of urgency isn’t there” to pay extra for ultra-fast shipping, said Bloomberg Intelligence analyst Lee Klaskow. “That usually happens when things are kind of tough, when people are trying to save money.”
FedEx now expects adjusted full-year earnings of $20 to $21 a share in the current fiscal year, below its previous forecast for as much as $22 a share. The midpoint of the new range is roughly in line with the $20.53 average of analyst estimates compiled by Bloomberg.
FedEx is considered an economic bellwether due to its wide exposure to industries stretching across the global economy, from retail to manufacturing. The company is also in the process of integrating its Ground and Express delivery networks as part of a wider cost-cutting drive. Subramaniam said the company remains on track for savings of $2.2 billion this fiscal year.
For the quarter ending Aug. 31, it reported adjusted earnings per share of $3.60, well below analyst expectations for $4.77 and the $4.37 it reported a year ago. Revenue came to $21.6 billion, slightly below the $21.9 billion estimated by analysts.
This marks the first quarter that FedEx used new reporting segments after consolidating its Express, Ground and Services operating companies on June 1.
(Updates shares, adds analyst comment and additional detail from the second paragraph.)
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