FedEx (FDX) shares fell nearly 15% on Friday morning following a much worse-than-expected quarterly earnings report the day before, highlighting investor concerns about emerging cracks in the U.S. economy.
FedEx, often viewed as a bellwether for the economy, reported earnings of $892 million, about 24% less than analysts expected for its fiscal first quarter ended Aug. 31. The company also lowered its financial outlook for the upcoming fiscal year, projecting earnings per share of $20 to $21, down from its previous range of $20 to $22.
The quarterly results came a day after the Federal Reserve made a historically large cut in interest rates but said the U.S. economy remained strong. FedEx’s outlook contrasts with that reading.
“The magnitude of yesterday’s Fed rate cuts indicates the weakness of the current environment,” FedEx CEO Raj Subramanian told analysts on a call Thursday afternoon.
On Friday morning, investors seemed to lean toward Subramanian’s take on rate cuts, or at least their initial euphoria faded. After hitting record highs the day before, the S&P 500 (^GSPC) sank 0.43%. The Dow (^DJI) fell 0.38% and the Nasdaq (^IXIC) dropped 0.44%.
FedEx executives attributed the company’s poor performance to inflation-pressured customers who stopped paying higher rates for its priority shipments. Subramanian also blamed a “weaker industrial economy” for declining demand for its B2B services, or shipments between businesses and manufacturers. And FedEx is ending its contract with the U.S. Postal Service. Subramanian said the company expects to take a $500 million hit from the termination of the partnership.
Subramanian said the company will continue its aggressive cost-cutting efforts, which are expected to save the company $4 billion in the next fiscal year.
Stephens analyst Daniel Imbro offered some hope for FedEx’s future in an interview with Yahoo Finance on Friday morning. “We have been recommending buying in the $250s as we believe the next 12 months offer quite attractive risk reward from these levels.”
But Oppenheimer analysts said they are taking a wait-and-see approach to FedEx’s cost-cutting efforts.
“With the company’s integration of the Express and Ground segments into one through its Network 2.0 initiative, we expect to demonstrate sustained progression toward total margin levels beyond company highs in a still challenging operating environment,” they wrote in a note to investors Friday morning.
Laura Bratton is a reporter for Yahoo Finance.
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