FedEx Shares Dive On Missed Earnings and Lower Guidance for 2020

It has been a tough year for FedEx.  Shares tanked almost 7 percent in extended trading on Tuesday this week, after the shipping giant lowered its guidance for the rest of its year on weaker-than-expected second quarter earnings. 

Indeed, FedEx Chief Financial Officer Alan Graf, Jr explains, “Our revised guidance reflects lower-than-expected revenue at each of our transportation segments and higher-than-expected expenses driven by continued mix shift to residential delivery services.”

Specifically, FedEx posted that adjusted earnings per share are $2.51, which is lower than the $2.76 they had expected.  Similarly, revenue came in at $17.32 billion, just shy of the expected $17.58 billion. Furthermore, on an adjusted basis, the profit for their second fiscal quarter—which ended November 30—fell to $560 million, or $2.13 per share.  That is dismal when compared against the $935 million, or $3.51 per share, from the same quarter the year before. 

In addition, revenue is down $17.3 billion.  Last year, in the same session, revenue was $17.8 billion.

All of this has led to the company lowering its guidance on full-year earnings outlook.  Now the company expects earnings will range between $10.25 and $11.50 per share, instead of the $11 to $13 per share they had originally expected, on an adjusted basis. And that is all in line with the $12.03 per share Wall Street had anticipated as well.

Graf dissects the many factors that have gone into this dramatic turn. First, global economic conditions are weakening, and that simply reduces activity across the board.  Secondly, Graf specifically notes the loss of business from a “large customer” and we can only presume this refers to the end of their contract with Amazon, in August.  

On a call with Wall Street analysts, Tuesday, Graf goes on to say that 60 percent of FedEx Ground’s year-over-year margin dip came out of costs related to transitioning into a six- and seven-day delivery schedule as well as online holiday sales starting earlier this year—in the third quarter—combined with the total loss of Amazon volume.  On the same call he comments, “We are at the bottom. Our adjusted operating profit year-over-year is horrific, but it’s going to improve in Q3 and even more in Q4, compared to the prior year…We’re going to come up off the mat and improve through the course of this year and into the next.”