FedEx a yellow flag on economy as stock falls

  • FedEx — a popular indicator on how the economy is faring — cites sluggish conditions in Europe, Japan and emerging markets
  • Company’s ground-shipping profit slows and important express revenue weakens as lighter packages are shipped shorter distances in the U.S.
  • FedEx stock slumps more than 5 percent on Wall Street following the company’s outlook announcement

The price of FedEx stock fell more than 5 percent Wednesday as the global shipping giant cut its 2019 forecast and posted weaker quarterly results than analysts predicted.

Among the reasons? Slowing global growth hurt by sluggish economic conditions in Europe, Asia and the mix of goods shipped in the U.S.

“We see solid economic growth in the U.S. but somewhat below last year’s pace,”  Brie Carare, the chief marketing and communications officer, said on a conference call with analysts late Tuesday. Outside the U.S., the overseas markets outlook was mixed as “overall growth moderates,” she said, pointing to sluggish company numbers in Europe and Japan and slower emerging markets. Carare also pointed to a slowing economy in China amid slowing global trade.

The disappointing report from FedEx backs up predictions from some economists for slowing global growth this year – though not enough of a weakening to forecast a recession. Fed Chair Jerome Powell recently said as much in an interview on 60 Minutes.

Federal Reserve Chairman Jerome Powell: The “60 Minutes” interview

One reason for less dire predictions from economists and global companies like FedEx may be an apparent pause in escalation of the Trump administration’s trade war. The U.S. postponed a further and dramatic increase on imported Chinese goods while the world’s two biggest economies negotiate.

“Despite the sharply deteriorating growth picture, we do not see the onset of a global recession,” Fitch Ratings economists wrote in a note Wednesday, pointing to continued growth in the U.S., low unemployment and improving incomes. Those conditions are supporting consumer spending, which accounts for roughly 70 percent of the U.S. economy.

“The increase in U.S. tariffs on Chinese imports that we had been expecting at the beginning of March has not yet materialized and there are growing hopes that it may be avoided,” the Fitch economists wrote.

In its latest quarter, FedEx’s ground-shipping business took in 9 percent more revenue than a year earlier, but operating income fell by 6 percent due to higher costs for running six days a week year-round and buying transportation capacity on the road and in the air.

Until January, the company ran six days a week only around the peak holiday shipping season. FedEx is also spending on technology upgrades as well as new hubs in Memphis and Indianapolis.

FedEx continues to cope with a still-rocky integration of European shipping shipping company TNT, purchased in May 2016. The process of combining the companies has been plagued by high costs as the as well as a damaging cyberattack at TNT almost two years ago.

FedEx CEO urges Trump to rethink trade policies

The company “has clearly suffered amid the deterioration in global macroeconomic conditions over the past year, with lingering impact from mid-2017’s cyberattack at TNT compounding the issues,” Baird analyst Benjamin Hartford wrote in a note Wednesday.

In addition to weak performance tied to international conditions, changes in the mix of goods shipped in the U.S. are also denting FedEx’s performance, Daniel Sherman, an analyst with Edward Jones, told the Associated Press.

At home, FedEx is delivering more residential packages over shorter distances that are lighter-weight and less expensive to ship, Sherman told the AP.

Stock of FedEx competitor UPS also fell, dropping 2.7 percent. It reports quarterly earnings April 5.

The Associated Press contributed to this report

Categories: US & World News

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