FedEx Corp (FDX) - Get Report shares traded sharply lower Wednesday after the world's biggest package delivery group issued its second profit warning of the year amid slowing global trade and increasing pressures from rival shipping companies.
FedEx said non-GAAP earnings for the three months ending in November, the group's fiscal second quarter, fell 37.7% from last year to $2.51 per share, well shy of the Street consensus forecast of $2.76. Group revenues, FedEx said, slipped 2.8% to $17.3 billion but came in just ahead of analysts' forecasts.
FedEx also slashed its fiscal 2020 earnings forecast, and now sees adjusted earnings in the region of $10.25 to $11.50 per share, down from its September guidance of $11 to $13 per share and its June estimate of $14.75 per share.
"The quarter just ended is an anomaly because of the compressed shipping season before Christmas, necessitating a significant bow wave of expenses and volumes that will largely fall in our third fiscal quarter," CEO Fred Smith told investors on a conference call late Tuesday. "In addition, this quarter has seen significant effects on the industrial economy due to continuing trade disputes, including reductions in international air freight and tepid at best B2B domestic parcel and freight shipping."
"Despite these issues, we remain highly confident in our strategies, which we believe will begin to bear fruit by our fourth fiscal quarter and then into FY '21, absent negative macroeconomic developments," Smith added.
FedEx shares were marked 8.2% lower in early trading Wednesday to change hands at $149.85 each. a move that would trim the stock's year-to-date gain to just 7%.
The weaker-than-forecast quarterly updated came just hours after the group said that one of its biggest customers, Amazon Inc. (AMZN) - Get Report, aid it would block third-party sellers from using the package delivery group's ground service for Prime orders during the final days of the holiday season.
Amazon said third party sellers -- which make up around half of the goods sold on its website -- must use the Amazon Prime delivery services or pay for FedEx's more expensive Express service amid reports that the world's biggest retailer is unhappy with FedEx's delivery performance.
The move to block FedEx follows a spat between the two groups over the summer that saw the group end its ground delivery and air express contracts with Amazon as it moved to create a new "delivery service partners" network to improve local delivery activity.
"While management expressed confidence toward "teen" Ground margins by F4Q20 and reiterated expectations for continued TNT integration into FY21, our sense is headwinds from intermediate-term investments are magnified by slower industrial production and global trade, as well as recent customer attrition," said KeyBank Capital analyst Todd Folwer, who carries a sector weight rating on the stock.
"Further, we believe the expected reduction in flight hours post peak, while helping to stem costs, may also have revenue implications into FY21. As a result, while margins are likely bottoming, we do not anticipate near-term normalization given an unfavorable macro backdrop and elusive execution," he added.