FedEx (FDX) is down 9% at a 27-month low after the company reported solid second quarter results but lowered fiscal 2019 earnings guidance and removed its fiscal 2020 profit target.
FedEX narrowly beat second quarter estimates. Operating income grew 7% but adjusted operating margins may have disappointed, down 10 basis points to 7.5%, while revenue grew 9%.
"While the U.S. economy remains solid, our international business weakened during the quarter, especially in Europe. We are taking action to mitigate the impact of this trend through new cost-reduction initiatives."
FedEx lowered FY19 EPS to $15.50-16.60 from $17.20-17.80. Disappointing express package volume due to European economic weakness that accelerated during the quarter and is expected to continue, and a change in service mix following the June 2017 cyberattack on TNT Express, will delay the anticipated realization of benefits from the TNT Express acquisition.
As a result, the target to increase FedEx Express operating income by $1.2 billion to $1.5 billion over fiscal 2017 results will not be achieved in fiscal 2020.
"Global trade has slowed in recent months and leading indicators point to ongoing deceleration in global trade near-term," said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer. "These trends, coupled with the change in service mix at FedEx Express, are negatively impacting the segment's financial results. We remain committed to actively managing costs with a heightened focus on increasing efficiency across the organization."
On the conference call last night, management said the peak for global economic growth appears to be behind us. The company cited a slowdown in the Eurozone, UK, China and emerging Asia as world trade slowed to 3.5% in the third quarter from 5.3% one year ago. The company noted that politics are creating headwinds.
The company announced cost reduction initiatives to improve productivity.
FedEx's outlook seems ominous given the highly cyclical transportation sector tends to to be a leading indicator for the direction of the economy. The company has rather consistently struggled with the TNT Express acquisition after a cyber attack crippled the business last year.
Rival courier UPS (UPS) has actually pared losses after hitting a near three-year low this morning.