FedEx Corp disappointed shareholders again by slashing its profit outlook, and Wall Street’s patience is running out.
At least four analysts downgraded the shares, sending shares tumbling Wednesday by the most in four years. While FedEx said trade tensions were weakening the global economy and sapping demand for parcel deliveries, the company’s critics emphasised “elusive’’ business execution, an insufficient grip on costs and “acquisition debacles.’’
Investors’ mounting frustration underscored FedEx’s inability to keep up with even its own weakening expectations. For more than a year, the company has made a habit of cutting its earnings forecast or missing analysts’ diminished estimates while trailing the shareholder returns of rival United Parcel Service Inc.
“This is I think the fifth straight quarter of either missing numbers or cutting guidance,’’ Wolfe Research’s Scott Group told FedEx’s top executives on a conference call late Tuesday. “We need some hand-holding here.” The shares plunged 13% to $151.27 in New York after dropping to as low as $151.20 for the biggest intraday decline since August 2015.
The drop wiped out FedEx’s year-to-date gain and spurred declines at UPS and Germany’s Deutsche Post AG.
Even before the decline, FedEx was already lagging UPS and a Standard & Poor index of US industrial companies. Deutsche Post responded to FedEx’s warning by saying that it hasn’t seen changes in volume trends since its most recent comments in August.
FedEx blamed the profit warning, for the fiscal year ending in May, on global economic weakness “driven by increasing trade tensions and policy uncertainty.” Citigroup Inc analyst Christian Wetherbee called the outlook cut “drastic.”
FedEx’s struggles are “largely the result of many management missteps over the years,” including acquisition “debacles” and “overspending” on cargo planes, Deutsche Bank AG’s Amit Mehrotra wrote in a report downgrading the stock to hold. At KeyBanc Capital Markets, analyst Todd Fowler cut FedEx to sector weight from overweight, saying strategy execution has been “elusive.” Here’s what analysts are saying about FedEx’s outlook.
The company posted “very weak” first-quarter results and guidance, and there was a lack of acknowledgment from management on “its own execution failures.” “In reality, FedEx’s release is largely the result of many management missteps over the years, incl. overspending on aircraft despite weaker returns in Express over the long-term, and acquisition debacles.”
The “main event was a drastic guidance cut,” which equates to a nearly $900mn reduction in FedEx’s earnings outlook, with the company clearly taking a hit from decelerating macroeconomic environment in Europe and trade issues globally.
But FedEx also suffering from running “duplicative networks” in Europe and lack of action on cutting capacity, both of which are contributing to an “inability to cut lower costs dynamically.”
This is a “transition year” for FedEx, with earnings expected to recover in its 2021 fiscal year after the company has completed the integration of TNT.
Even so, the situation would “obviously improve sooner if there were a trade deal between the US and China.”
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