FedEx’s huge sell-off tells us where the economy is headed: NPR


FedEx’s stock price sank last quarter after warning investors of damage to its performance.

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Joe Redl / Getty Images


FedEx’s stock price sank last quarter after warning investors of damage to its performance.

Joe Redl / Getty Images

In a challenging economy, FedEx isn’t delivering, and that worries Wall Street.

Last quarter it processed fewer packages due to “weak economic conditions” and FedEx Express’ operating income fell 69%, according to FedEx’s latest earnings report released Thursday.

Spending on its ground carrier had gone up, and now the company plans to increase its rates by an average of about 7%.

The news comes after a surprise warning last week that the company was in trouble. Following that announcement, FedEx’s share price fell more than 20%, and some of its rivals, including UPS and XPO Logistics, lost ground as well.

The global economy – the “macro climate” – is responsible for the company’s shocking slowdown, CEO Raj Subramaniam tells CNBC’s Jim Cramer Last week. Cramer asked the executive if he expected the world to plunge into an economic downturn.

“I think so,” replied Subramaniam.

On Thursday, FedEx outlined key steps to get back on track.

The company is going to take some of its planes out of service and is going to withdraw Sunday deliveries. On top of that, it intends to close around 100 retail locations and, like many companies right now, it plans to hold off on hiring until the economic uncertainty around the world goes away.

Beyond fast delivery: The world sees FedEx as an economic troublemaker


Because Wall Street views FedEx as a bellwether, an unexpected update about the company’s performance left investors nervous. Its share price has fallen by more than 20%.

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Because Wall Street views FedEx as a bellwether, an unexpected update about the company’s performance left investors nervous. Its share price has fallen by more than 20%.

Spencer Platt / Getty Images

What’s troubling investors is that FedEx is seen as a troublemaker.

“We are a reflection of everyone’s business,” Subramaniam said.

last week in that warning, which came as a business update, FedEx withdrew its forecast for earnings. It is unable to project which money is coming in because it is in “a perpetually unstable operating environment”.

FedEx also says it faces “service challenges” in Europe, where a recession appears likely, and “widespread economic weakness” in Asia, which continues to struggle even with strict COVID lockdowns.

Because of its size and the fact that its business deals with moving goods, FedEx “can tell us very clearly what’s going on with inventory moves and general business activity,” said J. Bruce Chan, who is Stifel’s Covers transportation and logistics companies.

While this provides a good reading for the two major segments of the economy, it also serves as a reliable indicator of what is coming down the road. According to analysts at Barclays, during the last three recessions — in 2020, 2009 and 2001, FedEx’s earnings contracted similarly.


FedEx, which operates in more than 200 countries, says it has had trouble dealing with recent economic challenges in Europe and Asia.

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FedEx, which operates in more than 200 countries, says it has had trouble dealing with recent economic challenges in Europe and Asia.

Bruce Bennett / Getty Images

Today, FedEx has a huge global footprint. It operates in more than 200 countries, and the Memphis-based company’s half-million employees process more than 15 million shipments daily.

During the pandemic, when homebound shoppers ordered books, electronics and furniture, shipment volumes soared and so did FedEx’s share price.

But as the United States and many other countries eased their COVID protocols, people began to spend more on services, not goods. Result: FedEx and its competitors are handling fewer shipments.

“They are not collapsing, but they are falling,” said Amit Mehrotra, an analyst at Deutsche Bank, adding that the current slowdown needs to be navigated with “very, very good cost management”. .

“That’s where we think FedEx has failed dramatically,” Mehrotra said.

Like other Wall Street analysts who track the company, Mehrotra says that while FedEx’s performance can tell us a lot about the state of the global economy, the company can’t put all its problems on it alone. can.

“It was more of a company-specific story … than anything to be explained by the macroeconomic slowdown,” he said.

Determining whether the culprit is really the economy, the company, or both

FedEx is in the midst of a significant transition. Subramaniam became CEO four months earlier, succeeding Fred Smith, who founded the company in 1971.

After Ken Hoxter, an analyst covering FedEx for Bank of America, reviewed last week’s business update, he wondered how much of the company’s plight was due to its current executives setting unrealistic goals.

“I think you had a setup here that was unattainable from the start,” he said.

Things could get worse financially, “but FedEx-specific issues mounted on them,” he said.


FedEx’s stock price fell more than 20% last week, triggering a widespread sell-off on Wall Street.

Spencer Platt / Getty Images


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Spencer Platt / Getty Images


FedEx’s stock price fell more than 20% last week, triggering a widespread sell-off on Wall Street.

Spencer Platt / Getty Images

So, was the sell-off justified?

According to Stifel Chan, there’s a lot going for investors and everyone else.

“Right now, there is a lot of debate going on about the direction of the global economy,” he said.

Chan said, by missing the mark on earnings so badly and providing such an uncertain outlook on the future, FedEx “gave people who might have been riding the fence in terms of cautioning them.” should.”

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