TLDR
- FedEx shares fell 8% after cutting annual earnings forecast
- CEO cited “challenging operating environment” and weakness in industrial economy
- Trump’s tariff policies creating uncertainty for businesses
- Lower-margin e-commerce deliveries outpacing higher-margin business-to-business shipments
- Nine brokerages cut price targets following the announcement
FedEx has reduced its earnings forecast for the fiscal year 2025, causing its stock to drop significantly in premarket trading. The delivery giant now expects adjusted earnings per share to be between $18.00 and $18.60, down from the previous estimate of $19 to $20.
The news sent FedEx shares tumbling 8% in premarket trading on Friday. Investors reacted strongly to what many see as a warning sign about broader economic conditions.
CEO Raj Subramaniam identified two key challenges facing the company. He described a “very challenging operating environment” and noted that “weakness in the industrial economy” was hurting the company’s higher-margin business-to-business volumes.
The delivery company’s financial health is closely watched by investors. FedEx and its competitor UPS are considered bellwethers for the global economy due to their involvement across numerous industries.
Trade Uncertainty Impact
The revised forecast comes amid growing concerns about the economic impact of President Donald Trump’s trade policies. Trump’s on-and-off import tariffs have created significant uncertainty for businesses.
This uncertainty has led many companies to become more cautious with their spending. The unpredictable economic landscape has affected planning and investment decisions.
Some analysts have warned that Trump’s tariffs could trigger a recession and potentially a trade war. Such developments would further reduce demand for transportation and delivery services.
Morgan Stanley analysts expressed concern that the forecast cut “will likely exacerbate concerns of structural pressures in the parcel business.” They suggested these pressures might even overwhelm FedEx’s ongoing cost-cutting program.
The impact was felt beyond FedEx. Shares of UPS dropped 1.7% following the announcement, while European competitor DHL saw its stock fall by 2.3%.
Changing Delivery Landscape
FedEx has been implementing cost-reduction measures as the delivery landscape evolves. The company is adjusting to a shift in its business mix.
Demand for lower-margin e-commerce deliveries from retailers like Temu and Shein continues to grow. These deliveries typically generate less profit for FedEx than business-to-business shipments.
Morgan Stanley added that while macroeconomic factors play a role, “structural forces are a far bigger headwind than the market thinks.” This suggests the challenges facing FedEx may be more fundamental than temporary economic conditions.
The magnitude of the forecast reduction surprised some analysts. Evercore ISI noted that while a forecast cut itself wasn’t unexpected, the size of the reduction “particularly for one remaining quarter, was greater than feared.”
In response to the news, at least nine brokerages cut their price targets on FedEx stock on Friday. This reflects decreased confidence in the company’s near-term performance.
Recent Performance
FedEx’s quarterly results showed mixed signals. The company reported adjusted earnings per share of $4.51 from sales of $22.2 billion for the most recent quarter.
This represented growth compared to the same period last year when FedEx reported earnings per share of $3.86 on sales of $21.7 billion. However, it fell short of Wall Street’s expectations of $4.56 per share.
The company faced several challenges during the quarter. These included severe weather events, delayed data from China, and increasing uncertainty related to macroeconomic policy.
While FedEx managed to grow sales by about 2% in its fiscal third quarter, this trend isn’t expected to continue. The company now projects full-year sales to be flat to down compared to the previous year.
This forecast implies a fourth-quarter decline of approximately 5%. This would represent a shortfall of about $1.2 billion compared to Wall Street’s estimate of $22.2 billion.
FedEx specifically pointed to lower-than-expected business-to-business trends as a reason for the guidance cut. Analysts view this as evidence that tariff uncertainty is reducing overall business activity.
The revised guidance suggests fourth-quarter earnings per share of about $6.14, well below Wall Street’s expectation of $6.74. This indicates significant pressure on profitability in the near term.
Despite the current challenges, some analysts maintain a positive long-term outlook. Citi analyst Ariel Rosa and Evercore ISI analyst Jonathan Chappell both rate FedEx shares as “Buy,” although with different price targets.
In summary, FedEx’s forecast reduction has heightened concerns about both company-specific challenges and broader economic trends, particularly related to trade policy uncertainty and shifts in delivery patterns.
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