FedEx burns $3.5 billion in market value after a brutal earnings report

ReutersHandlers place letters and envelopes into cartons at the Marina Del Rey, California FedEx station
  • FedEx wiped out as much as $US3.5 billion from its market valuation in early Wednesday trading, falling 7.5% after missing earnings expectations.
  • The company missed estimates for fiscal second-quarter profit and revenue.
  • FedEx also shifted its full-year earnings estimate lower, citing a greater shift to expensive home deliveries and falling revenue from its transport businesses.
  • The firm plans to invest in cost-saving technologies and cut down on hiring to curtail further profit slowdown, according to its earnings report.
  • Watch FedEx trade live here.

FedEx tumbled as much as 8% in early Wednesday trading, wiping out $US3.5 billion in market value as the company’s second-quarter results disappointed analysts.

The delivery company missed expectations for quarterly revenue and earnings. The company also slashed its full-year profit outlook, citing a greater shift to expensive home deliveries and falling revenue from transport businesses for the weaker forecast.

“Fiscal 2020 is a year of continued significant challenges and changes for FedEx, particularly in the quarter just ended due to the compressed shipping season,” CEO Fred Smith said in the quarterly report.

Here are the key numbers:

Revenue: $US17.3 billion, versus the $US17.66 billion estimate

Adjusted earnings per share: $US2.51, versus the $US2.78 billion estimate

Adjusted operating margin: 3.9%, versus the 5.35% estimate

2020 adjusted EPS forecast: $US10.25 to $US11.50, previously expected $US11 to $US13

Amazon banned third-party sellers from using FedEx’s ground delivery for Prime shipments on Monday, escalating the feud between the two firms. The e-commerce giant said FedEx’s services underperformed, and that the temporary ban was put in place to protect buyers from holiday season shipment troubles.

The cancelled collaboration, as well as Thanksgiving’s late arrival this year, cuts into the crucial end-of-year revenue stream FedEx typically enjoys. The company now plans to pause hiring and invest in cost-saving technologies to stem its earnings slowdown.

“In response, we are implementing reductions to the global FedEx Express air network to better match capacity with demand,” chief financial officer Alan Graf said. “We are also further restricting hiring and pursuing opportunities to optimise our networks, including investments in technology aimed at improving our productivity and lowering our costs.”

FedEx closed at $US163.23 per share on Tuesday, up roughly 1% year-to-date.

The company has 14 “buy” ratings, 16 “hold” ratings, and one “sell” rating from analysts, with a consensus price target of $US170.63, according to Bloomberg data

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