FedEx Corp. (FDX) - Get Report shares extended declines Monday following a weekend report from China's state-run news agency that the group will be investigated for allegedly re-routing packages destined for Huawei Technologies.
The Xinhua News Agency said Saturday that authorities would probe FedEx for "wrongful delivery of packages" that violated domestic laws and customer interests. China's Commerce Ministry, meanwhile, said it would identify a group of "Unreliable Entities" in response, although it declined to name which U.S. firms would find its way onto the list. Huawei said last week that four packages, which contained company documents, were deliberately re-routed by FedEx back to the United States, a charge FedEx denies.
Huawei said the alleged diversion, which comes just ten days after the Commerce Department put the China-backed group on its so-called Entities List that restricts is access to U.S. markets, would force it to "review" its relationship with the courier.
"FedEx values our business in China," the company said in a statement posted on its website Saturday. "Our relationship with Huawei Technologies Co. Ltd. and our relationships with all of our customers in China are important to us."
"FedEx holds itself to a very high standard of service. FedEx will fully cooperate with any regulatory investigation into how we serve our customers," the statement said.
FedEx shares were marked 1.3% lower Monday and changing hands at $152.34 each, a move that would extend the stock's seven-day decline to around 7.2%.
Commerce Ministry spokesman Gao Feng said the China blacklist would include "foreign enterprises, organizations and individuals that do not comply with market rules, violate the spirit of contract, block or cut supplies to Chinese firms with non-commercial purposes, and seriously damage the legitimate rights and interests of Chinese enterprises," in a weekend statement that came amid an official White Paper on U.S-China trade.
FedEx cut its full-year profit forecast for the second time in three months in March after reporting weaker-than-expected third quarter earnings linked to the broader global slowdown in trade and package demand.
"Since our last earnings call, we have seen the overall China economy slow down further, and this has impacted other Asian economies," CEO Fred Smith told investors on March 19. "Given the size of China, no markets will be able to absorb more than a fraction of what China produces, but customers continue to look to diversify from China."
"We have also seen some customers evaluate mode optimization. Our network and portfolio lets customers respond quickly and act locally for our customers in China, as well as around the world," he added.