In a stunning move, FedEx said on Thursday a slowdown in volume worldwide contributed to a substantial Q1 revenue and income miss, and president and CEO Raj Subramanian told CNBC he believes a global recession is impending, as the company withdrew its fiscal 2023 forecast.
FedEx is being hammered in the business press and by investors based on rosier projections made at its June investors’ meeting. This bad news came a week ahead of the scheduled earnings release. As of 2p EDT on Friday, the stock was down nearly 22% from the previous day’s close.
FedEx is calling for non-GAAP earnings per share in Q1 of $3.44 for the quarter ended Aug. 31, compared to the Wall Street consensus estimate of $5.14. Operating income is pegged at $1.23 billion, down from $1.49 billion a year earlier.
The company said FedEx Express results were “particularly impacted by macroeconomic weakness in Asia and service challenges in Europe,” with revenue coming in at $11.1 billion, $500 million below estimates. Adjusted operating income was $188 million, a huge decline from $660 million a year ago. FedEx has said it was past nagging performance issues in Europe related to the integration of TNT Express, acquired in 2016.
FedEx Ground revenue for Q1 was $8.2 billion, about $300 million below estimate. Adjusted operating income was $691 million, up from $671 million. That unit of course is facing a contractor uprising that has yet to be quelled, which has generated keen interest from an activist investor that controls three FedEx board seats.
“Global volumes declined as macroeconomic trends significantly worsened later in the quarter, both internationally and in the U.S.,” said Subramaniam in a statement. “We are swiftly addressing these headwinds, but given the speed at which conditions shifted, first quarter results are below our expectations.”
Calling the results “disappointing,” Subramaniam said the company is aggressively pursuing cost reduction efforts and exploring other ways to gain efficiency and improve productivity. “These efforts are aligned with the strategy we outlined in June, and I remain confident in achieving our fiscal year 2025 financial targets,” he said.
Among the cost-cutting moves announced by the company are a reduction in flight frequencies and temporary parking of aircraft; the closure of 90 FedEx Office locations and five corporate office facilities; a reduction in labor hours and linehaul expenses; a further reduction in FedEx Ground Sunday operations; consolidation of sortation operations; deferral of hiring; and cancellation of certain projects, including those aimed at adding network capacity.
Subramaniam told CNBC’s Jim Cramer on “Mad Money” Thursday that he thinks a global recession is likely. “I think so,” he said. “But you know, these numbers, they don’t portend very well.”
Speaking of that, Subramaniam hung a lot of the blame for the bombshell Q1 warning on external factors. “You know, the headline really is the macro situation that we’re facing,” he said.
JPMorgan analyst Jack Atherton said FedEx needs to watch out for the 800 lb. gorilla in Seattle. “Amazon has piled money into its logistics capability over the past few years, to the point it has excess capacity for its own needs and is hungry for more share, which is being targeted through FBA (Fulfillment By Amazon) and could be weighing on FedEx,” Atherton said in a research note, according to Yahoo.