FedEx drops by 10% as investors express disappointment in the earnings report

on Dec 19, 2019
Updated: Mar 11, 2020
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  • FedEx misses analysts forecast for revenue and earnings per share in Q2 performance report.
  • Analysts cite FedEx's failure to adapt to e-commerce as a contributing factor to poor results.
  • Trade war and global economic slowdown has weighed on the demand for air cargo shipping.
  • Losing Amazon's shipping contract cost $900 million to FedEx in annual revenue.
  • The stock dropped by 10% on Wednesday after Tuesday's Q2 earnings report.

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Investors
are not happy with FedEx’s performance this year. The American multinational courier
delivery service announced its earnings report on Tuesday. Posting worse than
expected earnings followed by downgrading profit guidance for the third time
this year, FedEx was seen losing traction in the stock market.

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FedEx
Is Behind On Adapting To E-Commerce

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According
to the analysts, FedEx
is behind on adapting
to e-commerce and additional investments required to
establish a firm ground network. The absence of e-commerce, analysts added, makes
business costlier for FedEx in terms of operations while minimizing profits in
the long run.

It
was further added that the ongoing trade war of the United States with China
has also weighed on the sector. Trade tensions have also risen with Europe in
the past few weeks that further worsened the global economic slowdown. The
demand for air cargo shipping amidst such uncertainty in the macroeconomic
background has dropped sharply in the past few quarters.

In
a press release following the earnings report, CFO Alan Graf Jr. commented:

“Our
revised guidance reflects lower than expected revenue at each of our
transportation segments and higher than expected expenses driven by continued
mix shift to residential delivery services.”

According
to FedEx’s performance results for the second quarter, the company noted a 3%
drop in revenue to $17.3 billion in Q2 versus $17.8 billion printed in the same
quarter last year. Profit, on the other hand, took a huge dive to $560 million
that marks an almost 40% drop as compared to $935 million that was posted in the
second quarter of the last year.

Losing
Amazon’s Shipping Contract Cost $900 Million To FedEx In Annual Revenue

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The
report also highlighted that in terms of annual revenue, the company bore a
loss of $900 million after Amazon ended its shipping contract with FedEx.
Amazon is currently in the process of making its mark in the delivery business.
The tech giant is consistently expanding its air, water, and land fleet to efficiently
deliver packages to the customers. Amazon Air also announced its partnership
with Sun Country Airlines
earlier this week.   

Based
on Refinitiv’s data, analysts had expected FedEx to record $17.58 billion in
revenue and $2.76 of earnings per share. Noting a considerably lower $17.32
billion in revenue and $2.51 of earnings per share, share prices were seen
trading 7% lower in extended trading on Tuesday. As of Wednesday, the stock had
lost a little over 10% and closed the day at around $147.00. With a market cap
of $38.32 billion, the company is currently trading below its opening level of
around $163.

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