Stock of Fedex Drops as Company Trims Sales Forecast

FedEx Corp. witnessed a decline in its stock value on Wednesday following a revision of its full-year sales forecast, a move prompted by ongoing apprehensions about subdued shipping demand during the crucial holiday season.

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The package-delivery giant, FedEx (FDX), anticipated a "low-single-digit percentage decline" in sales for fiscal 2024, deviating from its previous projection of "approximately flat" sales growth. While the company maintained its per-share profit expectations, the announcement led to a 10% drop in FedEx shares during premarket trading. Concurrently, rival United Parcel Service (UPS) experienced a 3% decrease in its stock value.

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This downturn followed FedEx's proactive cost-cutting measures, which included staff reductions, decreased flight frequency, a reorganization of its air network, and a consolidation of its overall corporate structure. These initiatives had propelled the company's stock upward for a significant portion of the year, resulting in a 59% year-to-date increase at the close of regular trading on Tuesday.

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During the earnings call, Chief Executive Raj Subramaniam acknowledged that consumer spending patterns on physical goods or services and experiences had largely returned to pre-pandemic levels. However, he pointed out that shipping demand faced challenges due to weaker global industrial production and businesses adopting a cautious approach to inventory amid economic concerns. Subramaniam expressed a lack of optimism about improvements in these trends for the remainder of the fiscal year.

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Brie Carere, FedEx's chief customer officer, noted that demand trends for the current holiday shipping season were "relatively similar to last year" and aligned with expectations. Nevertheless, analysts raised concerns about the impact of elevated prices for basic goods on the demand for holiday gifts, as increased prices in essentials like groceries have limited consumer spending on other items.

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FedEx's fiscal second-quarter results revealed a net income of $900 million, or $3.55 per share, compared to $790 million, or $3.07 per share, in the corresponding quarter of the previous year. Adjusted for "business-optimization costs," the company reported earnings of $3.99 per share. However, sales declined from $22.8 billion to $22.2 billion year-over-year, falling short of Wall Street estimates.

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The earnings report followed a period of tense labor negotiations at UPS and the bankruptcy filing of Yellow Corp., events that disrupted the shipping industry. UPS and the Teamsters union reached agreements for higher pay and additional benefits for over 340,000 unionized workers. This development could potentially impact FedEx's wage structure, although the company is actively pursuing a cost-cutting initiative, aiming to reduce expenses by $6 billion by fiscal 2027.

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Carere highlighted that FedEx had retained the "majority" of the business it acquired from UPS and Yellow. However, there were indications that UPS was intensifying efforts to reclaim this business. Additionally, Subramaniam mentioned a shift by the U.S. Postal Service, redirecting more of its package shipments from air service to ground.