TLDR:
- FedEx shares dropped 13% after cutting revenue forecast and reporting profit decline
- Weak demand for priority deliveries and shift to cheaper options impacted profits
- FedEx lowered its full-year adjusted operating income forecast
- The company is undergoing a complex restructuring to reduce costs
- FedEx is winding down its contract with the U.S. Postal Service, expecting a $500 million revenue decline
FedEx, one of the world’s largest shipping and logistics companies, is facing challenges as demand for its premium, fast-delivery services continues to decline.
The company recently reported a steep drop in quarterly profits and lowered its full-year revenue forecast, causing its shares to tumble by nearly 13% in premarket trading.
The Memphis-based company attributes this downturn to a shift in customer preferences. Many businesses are opting for slower, less expensive shipping options in an effort to reduce costs. This change has particularly affected FedEx’s high-margin priority delivery services, which have traditionally been a key source of profit for the company.
CEO Raj Subramaniam noted that industrial demand was softer than expected, indicating broader economic concerns. The company now projects revenue growth for fiscal 2025 to be in the low single-digit percentage range, a reduction from its earlier forecast of low-to-mid single-digit growth.
In response to these challenges, FedEx has revised its full-year adjusted operating income forecast. The company now expects earnings per share to be between $20 and $21, down from the previous range of $20 to $22.
This adjustment reflects the company’s anticipation of a continued competitive pricing environment and ongoing challenges in the industrial economy.
The shift in customer preferences is not unique to FedEx. Its main competitor, UPS, has also reported similar trends, with both companies feeling the squeeze on profits as customers opt for less lucrative shipping options.
However, while UPS pointed to increased volume from China-linked e-commerce players as a factor, FedEx highlighted a decrease in priority shipments between businesses as the primary cause of its profit decline.
FedEx is also dealing with the loss of a significant contract. The company is in the process of winding down its contract work for the United States Postal Service, its largest client. This change is expected to result in a $500 million decline in revenue for the current fiscal year.
Despite these challenges, FedEx is not standing still. The company is in the midst of a complex restructuring effort aimed at reducing costs and improving operational efficiency.
This includes plans to slash billions of dollars in overhead costs and merge its separate Ground and Express delivery units. The company is also considering whether to spin off or sell its FedEx Freight business as part of its strategic review.
The recent quarterly results show the impact of these ongoing changes. While cost-cutting measures have been implemented, they were not sufficient to offset the drag from weak demand for lucrative priority services. The company also noted that having one fewer operating day in the latest quarter contributed to the profit decline.
FedEx’s situation reflects broader trends in the shipping and logistics industry. As businesses and consumers become more cost-conscious, there’s a growing preference for slower, less expensive shipping options. This shift is forcing major players like FedEx to adapt their business models and find new ways to maintain profitability.
The company’s stock performance has reflected these challenges, with shares dropping significantly following the announcement of the quarterly results. This decline also had a ripple effect on the industry, causing a dip in the stock price of rival UPS.
