FedEx profit misses, cuts full-year revenue forecast; shares sink

FedEx cut its full-year revenue forecast and reported quarterly profit that fell far short of analysts' targets on Tuesday, sending shares tumbling 9.8 per cent, as its largest Express business saw demand from the U.S. Postal Service drop. The global delivery firm's shares fell to $252.58 in extended trading after closing at $280 on Tuesday. The results also dragged down shares of rival United Parcel Service by 2.9 per cent.

FedEx said adjusted earnings for the quarter that ended Nov. 30 jumped 23 per cent to $1.01 billion, or $3.99 per diluted share. But the result fell 19 cents per share short of analysts' estimate, according to LSEG data.

"We expect revenue will continue to be pressured by volatile macroeconomic conditions negatively affecting customer demand for our services across our transportation companies" for the remainder of the fiscal year that ends May 31, FedEx said in a regulatory filing.

FedEx now expects a low-single-digit percentage decline in revenue from last year, compared with its prior forecast of roughly flat results.

In a nod to investors who have pressured the company to slash costs and improve profits, FedEx said it expects to repurchase an additional $1 billion of common stock during fiscal 2024.

Operating income during the quarter dropped 60 per cent at the company's air-based Express unit. That was partly due to falling volume from the U.S. Postal Service, which has been shifting more packages from higher-margin air services to more economical ground services.

FedEx is negotiating a renewal of the post office contract with an eye toward improving profitability from the business. "It will take quite a significant change in contractual terms and agreement to renew that," Brie Carere, FedEx's chief customer officer, said on a conference call with analysts.

Analysts pressed the company on how it plans to meaningfully improve stubbornly low profitability in the Express business.

"Is the margin profile here fixable?" asked Bernstein analyst David Vernon, who said he was relaying investor concerns.

"I'm very confident that the margin at Express will return," after the company restructures those operations and demand comes back, FedEx CEO Raj Subramaniam said.

Elsewhere, operating income at FedEx's Ground division, known for delivering packages from Walmart and other customers, rose 51 per cent during the quarter.

FedEx said Ground gained share during the quarter and retained virtually all the customers it poached from United Parcel Service ahead of the Aug. 1 expiration of the contract covering UPS's 340,000 United Brotherhood of Teamsters employees.

"I'm confident we'll hold on" to them, Carere said.

The call came amid the crucial holiday peak shipping season that runs from late November through Christmas and is shaping up to be lackluster this year as consumers grapple with inflation and higher costs for housing, food and other necessities.