Shares of FedEx Corp fell 10.08 per cent on Wednesday after it again cut its earnings per share forecast for the 2020 fiscal year and was downgraded by several investment banks. The company is restructuring its business to replace its declining air freight business with lower-margin residential couriers. FedEx’s shares have fallen nearly half since hitting an all-time high of $274.32 in January 2018.
International trade tensions have hit FedEx in the US, while the company has been dragged down by the long consolidation of its expensive European TNT Express business.
Moreover, FedEx’s troubles with its former rival, Amazon, are no doubt compounding its woes. FedEx suspended its U.S. express delivery contract with Amazon in June and announced in August that it would terminate its land contract with Amazon.
At least six analysts have cut FedEx’s target price so far, but company executives insist the company’s business has bottomed out and will improve significantly by the end of the fiscal year in May 2020.
“After a series of disappointments over the past 13 months, the burden of proving is with the company’s management,” Bascome Majors, an analyst at Susquehanna, said in a note. ”
FedEx cut its forecast for fiscal 2020 by about 9 percent, citing costs associated with launching a seven-day delivery service, revenue losses from its spin-off with Amazon, the world’s largest online retailer, and continuing trade tensions across the country.
Internal missteps and the worst drop in air cargo traffic since the financial crisis hit the Memphis-based company’s second-quarter profit.
Executives say the integration of FedEx and TNT Express will take two years to complete.
The company is trying to capture the surge in e-commerce shipments by increasing full-year Sunday delivery, but costs exceeded expectations in the most recent quarter.
That led to a year-on-year decline in adjusted operating profit at FedEx Ground, which FedEx Ground CEO Henry Mayer called “horrible” on a conference call with analysts.
FedEx Ground hopes to deliver millions of SmartPost packages from U.S. Postal Service (U.S. Postal Service) Postal Service’s mail carriers are transferred to their own drivers, making more residents more profitable. The goal is to reduce costs by increasing the number of packages delivered at each stop, but analysts point out that the packages are extremely profitable.
David Vernon, an analyst at Bernstein, did not rule out further cuts to FedEx’s outlook.
“It’s a bad situation, and it’s not clear if it’s bottoming out,” Vernon said. “