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FedEx Shares Fell, Lowered Its Fiscal 2019 Outlook

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Lower fiscal 2019 outlook

FedEx (FDX) shares fell more than 6% during the extended trading session on December 18 after the company slashed its fiscal 2019 earnings outlook due to concerns about a possible global slowdown. During the company’s earnings release for the second quarter of fiscal 2019, FedEx’s executive vice president and CFO, Alan B. Graf, Jr., said, “Global trade has slowed in recent months and leading indicators point to ongoing deceleration in global trade near-term.”

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FedEx expects the GAAP EPS before the year-end MTM retirement plan accounting adjustments to be $12.65–$13.40—down from the previous forecast of $15.85–$16.45. The non-GAAP EPS is expected to be $15.50 and $16.60—compared to the earlier guidance range of $17.20–$17.80. Analysts polled by Thomson Reuters (TRI) expect the fiscal 2019 EPS to be $17.12.

During FedEx’s second-quarter earnings conference call, the company stated that the downbeat fiscal 2019 outlook is mainly due to weakness in its international business, especially in Europe. FedEx stated that the Chinese economy has weakened due to ongoing trade disputes with the US.

FedEx noted that a massive slowdown in the United Kingdom due to Brexit uncertainty, protests in France, and a contraction in Germany’s GDP hurt its international business. The company thinks that these factors could impact other European countries and slow down Asian economies’ growth rate.

Since FedEx is considered to be a bellwether for the global economy, its downbeat guidance and comments about a possible global slowdown fueled concerns that the US economy might also feel the heat in 2019.

Shares of FedEx’s closest competitors (IYT), UPS (UPS) and XPO Logistics (XPO) fell due to the dismal outlook. UPS and XPO Logistics fell 3.5% and 0.5%, respectively, during after-hour trading on December 18.

Cost-cutting initiative

To mitigate the above-mentioned trends, FedEx announced a new cost-reduction initiative. Under the initiative, FedEx is offering voluntary buyouts to certain employees, international capacity reduction at its FedEx Express division, limited hiring, and lower discretionary spending.

The company projects that voluntary buyouts of US-based employees will lead to a one-time pre-tax expense of $450 million–$575 million. FedEx expects to complete the voluntary buyouts in the fourth quarter of fiscal 2019. The initiative is expected to bring annualized savings of $225 million–$275 million starting in 2020.

Next, we’ll discuss how FedEx’s second-quarter earnings and revenues fared.

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