FedEx said a weaker industrial environment resulted in a “challenging” quarter, prompting it to lower its view for later this year, indicating a likely cooling in the overall economy.
Investors saw the company as a harbinger for the US and worldwide economies, but it was more concerned with industrial customers who send items to other businesses than with consumers, who account for the vast majority of US economic activity. CEO Rajesh Subramaniam stated that the company’s e-commerce shipments “start to grow again.”
FedEx (FDX) shares fell 14% on Friday because of concerns about its industrial customers.
FedEx Earnings Miss Could Signal A Slowing Economy
“The soft industrial economy is clearly weighing on (business-to-business) volumes, and it was definitely much weaker than we expected, and we have to make adjustments accordingly,” Subramaniam told investors in a conference call Thursday following its late-day report. “And as you know, shipments linked to industrial production are our highest-yielding and the most profitable.”
According to the firm, this resulted in “reduced demand for priority services (and) increased demand for deferred services.”
FedEx is a firm founded and built on people’s demand to get items delivered quickly – it’s in the name, after all. When consumers quit doing something to save money, it’s bad news for the company.
FedEx faced “pretty dramatic changes” in the shift in the mix from priority to deferred, according to CFO John Dietrich in the investors call, despite the fact that total volumes “were, for the most part, fairly strong.”
The figures were poorer than expected, coming the day after the Federal Reserve cut interest rates by half a percentage point in an effort to boost US economic growth. Subramaniam mentioned that cut during his remarks to analysts.
“The magnitude of the Fed rate cuts yesterday signals the weakness of the current environment,” Mr. Powell stated. “Now, we’re not assuming a significant comeback on the industrial environment in the rest of this (calendar year).”
FedEx Earnings Miss Could Signal A Slowing Economy
On Wednesday, however, Chair Jerome Powell stated that the Fed was decreasing interest rates to assist the labour market. “The labour market is in solid condition, and our intention with our policy move today is to keep it there,” Powell told reporters. “You can say that about the entire economy: the US economy is doing well. It is rising at a steady pace, and inflation is decreasing. The labour market is expanding rapidly. We want to keep it there. That is exactly what we are doing.
Subramaniam stated that FedEx is “cautiously optimistic” that industrial production will moderately increase in early 2025, “but we are dialling in pretty low growth expectations at this point because of the environment we are seeing.”
FedEx faced a number of challenges, including rising labour expenses.
FedEx shares had risen 21% year to date as of Thursday’s close before falling on Friday.
SOURCE | AP
