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On Friday, FedEx noted that global packages were on the decline, prompting the company to warn of a possible global recession.
Company shares
FedEx (FDX) shares fell 21% on Friday, making it the largest one-day drop in the company’s history.
FedEx also warned late Thursday that a slowdown in the economy would drive it $500 million below its revenue target.
The slowdown in the global economy, especially in Asia and Europe, has dealt a severe blow to FedEx’s courier business.
The company said demand dropped significantly in the final weeks of the quarter.
FedEx also said it expects a further weakening of trading conditions in the current second quarter, which will last until November.
The company expects worldwide sales for this quarter to remain stable from the previous year, with a forecast of more than 40% earnings.
Meanwhile, analysts expect earnings to rise.
Global recession forecast
FedEx CEO Raj Subramaniam was asked in an interview with CNBC on Thursday if he believes the company’s slowdown is a sign of the onset of a global recession.
“I think so,” he said. “These numbers, they don’t portend very well.”
Subramaniam also said the company is seeing a decline in the volume of cargo it handles in all regions of the world.
While US consumers are safe because of the dollar’s strength, which has impacted purchasing power, FedEx CEO said he sees US spending slowing.
Stock market movement
The warning prompted a sell-off in US stocks.
The Dow Transportation index fell 5%. Meanwhile, UPS shares closed down about 5%.
At FedEx, the 21% one-day loss outweighs the 16% decline during the 1987 stock market crash and the 15% decline in March 2020 stock sales.
So far in 2022, FedEx shares are down 38%.
FedEx responds
FedEx is responding to the loss with a number of actions.
The company will operate in the following:
- Reduce flights and temporarily park aircraft
- Trim hours for the staff
- Delay hiring plans
- Close 90 FedEx Office locations and five corporate office
- Cut $500 million from capital expenditure budget for fiscal year until May 2023
“We’re going fully into cost-management mode,” said Subramaniam.
Quarterly sales
FedEx said adjusted profit for the quarter (ending Aug. 31) would be down 17% ($260 million) year-over-year.
The company’s revenue also rose 5% ($1.2 billion), although the company missed its previous target.
FedEx issued a sharply lowered outlook for the quarter and said it would withdraw its full-year guidance starting in June, citing “the still-volatile operating environment.”
Read also: After US stock market hits the worst day since 2020, the market goes steady
Delivery service
FedEx Ground Service, the primary way they handle deliveries, missed its $300 million sale.
The company relies on independent contractors for deliveries, and many of them complain that rising costs for fuel, labor, and new vehicles are making their business unprofitable.
Some contractors are threatening to suspend Black Friday operations unless FedEx agrees to change their compensation.
The company insists it will work with struggling entrepreneurs. FedEx previously sued a former contractor who strongly criticized the company.
“We recognized that current economic conditions are posing new challenges,” FedEx Ground said in an August statement.
“We remain committed to working with service provider businesses individually to address the challenges specific to their situation.”
“Our goal is to enable success for both FedEx Ground and service providers,” the statement added.
More than 1,000 of the 6,000 contractors who have worked for the company have joined a trade association to campaign for better pay at FedEx.
An Associated Releases survey found that 54% of companies working with FedEx have lost money.
35% said it was breaking even, while only 11% said it was profitable.
The association’s survey reached more than 1,200 people who had worked or left the company in the past 12 months.
Reference:
FedEx warns of a global recession, cutting sales forecast by half a billion dollars
