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MarketScreener Homepage  >  Equities  >  Nyse  >  FedEx Corporation    FDX

FEDEX CORPORATION

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FedEx : Shares Plummet Following Dismal Results -- Update

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09/18/2019 | 04:58pm EST

By Paul Ziobro

FedEx Corp. shares plunged the most in a decade after the company's global Express business showed its vulnerability to global trade disruptions.

The Memphis, Tenn.-based delivery giant on Tuesday cut its earnings guidance for the fiscal year citing lower revenue projections in its Express unit, which ferries packages and cargo by planes around the world. With weaker macroeconomic conditions and uncertainty stemming from trade disputes across the globe, FedEx foresees fewer shipments moving across borders.

"The biggest impact was at Express and that was international with a large degree of that in Europe," FedEx Chief Financial Officer Alan Graf said on Tuesday's earnings call.

FedEx shares fell 13% Wednesday to $150.91, the stock's largest percentage decrease since Dec. 9, 2008. The decline wiped out nearly $6 billion in market capitalization.

FedEx reported an 11% decline in earnings for its fiscal first quarter when excluding integration expenses tied to its acquisition of the European carrier TNT Express. It also cut its profit and revenue forecasts, projecting per-share earnings to fall by as much as 29% in the current fiscal year, compared with an expectation of a mid-single-digit percentage decline issued in June.

FedEx Chief Executive Frederick Smith said Tuesday that the company had expected a resolution to the U.S. trade dispute with China as it entered its current fiscal year, but the "return to normalcy" it hoped for hasn't taken place.

The Express business, the company's largest by revenue, posted a 3% drop in revenue for the quarter, while income fell 27%.

FedEx is trying to cut costs aggressively in the business, though that won't happen until after the holiday shipping season, when having that extra shipping capacity is vital due to the surge in shipments.

Though the Express business is struggling, FedEx continues to pour money into it, buying new aircraft and modernizing some of its aging facilities in places like Memphis and Indianapolis with more automation. Some analysts questioned the wisdom of doing so when the business is in a down cycle.

FedEx executives defended the spending, projected at $5.9 billion over each of the next two fiscal years, as necessary. Upgrading the hubs will allow FedEx to process packages faster and with fewer workers, which are becoming harder to recruit, they said on the earnings call. Meanwhile, the new aircraft are more efficient to operate and more reliable, they said.

"The failure to do it is very dire," Mr. Smith said.

Mr. Graf said FedEx has already trimmed its future capital spending and would consider further cuts if the U.S. enters into a recession. "We'll definitely cut further," he said.

FedEx's results are also being hampered by the growth of e-commerce. That trend provides ample volume to fill planes and trucks but comes with additional costs, like those associated with a looming rollout of Sunday delivery year round. Online packages also are generally lighter weight and move shorter distances, so the revenue per shipment is lower than other shipments that move through the company's network.

"This is a structural issue, not a cyclical issue," said Satish Jindel, president of SJ Consulting Inc., a parcel-industry research firm. "The supply chain is changing."

FedEx is adding new services to cater to that change. It has started to offer ground shipments where the package only travels locally, shipping from, say, a Target Corp. store nearby. Mr. Smith said that while the revenue on such shipments is lower, they have higher margins because FedEx is now delivering more packages in neighborhoods. That increased delivery density reduces costs.

"FedEx will be the low-cost, high-service producer," Mr. Smith said. "You can put traffic in very, very late in the night or in the morning, and at a lower cost than anybody, and I mean anybody."

Write to Paul Ziobro at Paul.Ziobro@wsj.com

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Financials (USD)
Sales 2020 70 219 M
EBIT 2020 4 242 M
Net income 2020 2 968 M
Debt 2020 16 569 M
Yield 2020 1,69%
P/E ratio 2020 14,2x
P/E ratio 2021 11,9x
EV / Sales2020 0,82x
EV / Sales2021 0,79x
Capitalization 41 310 M
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Mean consensus OUTPERFORM
Number of Analysts 29
Average target price 164,56  $
Last Close Price 158,33  $
Spread / Highest target 26,3%
Spread / Average Target 3,93%
Spread / Lowest Target -24,2%
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Managers
NameTitle
Frederick Wallace Smith Chairman & Chief Executive Officer
Rajesh Subramaniam President & Chief Operating Officer
Alan B. Graf Chief Financial Officer & Executive Vice President
Robert B. Carter Chief Information Officer
John A. Edwardson Independent Director
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