FedEx’s stock fell more than 12% during Wednesday’s morning trading session after the company cut its revenue projections for the next financial year, claiming that decreased demand affected sales.
The company announced it anticipates revenue to see a negative low-single-digit percentage dip compared to last year, dropping from an earlier projection of level yearly sales. Data from LSEG (previously Refinitiv) shows that Wall Street experts had predicted a decrease of less than 1%.
It marks the second consecutive quarter that Memphis-based FedEx has reduced its full-year sales projection, raising further concerns on Wall Street over challenges facing the delivery sector.
The disappointing outlook and lackluster quarterly results overshadowed the company’s efforts to rein in expenses, which supported higher profits compared to last year even as the top line slowed. However, continued macroeconomic turbulence and softening demand pose risks in the months ahead that could strain cash flows if not addressed.
Among FedEx’s business segments, the FedEx Express unit that makes up the bulk of its revenue experienced significant weakness last quarter with lower volumes, surcharges, and a shift toward cheaper transportation options by some shippers looking to trim costs. With inflation squeezing consumers and uncertainty looming over the economic outlook, management expects these demand headwinds to persist through the remainder of the fiscal year ending in May.
Breaking down the results, FedEx missed Wall Street’s projections on both the top and bottom lines for its fiscal second quarter ended November 30. Revenue declined 3% to $22.2 billion year-over-year, falling short of the $22.4 billion consensus. Earnings per share of $3.99 on an adjusted basis also underwhelmed compared to forecasts of $4.18. While profits rose over 25% to $1 billion, aided by restructuring benefits, the sales miss was a sore point for investors.
In a call with investors, CEO Raj Subramaniam admitted the business faced a harsher environment but was more bullish about costs, pointing to tighter operations as reducing pressure. However, with macro conditions highly uncertain, sustaining profitability will depend on whether the demand stabilizes FedEx’s stock or weakens further in the quarters to come.
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