FedEx (FDX) - Get FedEx Corporation Report shares slumped lower Wednesday after the world's biggest package delivery group trimmed its full-year profit forecast following weaker-than-expected first quarter earnings.
FedEx said group revenues came in at $22 billion, narrowly topping Street estimates, but higher operating costs ate into its bottom line. Adjusted earnings were $4.37 per share, down 10.2% from last year and well shy of the Street consensus forecast of $4.91 per share.
FedEx said ongoing tightness in the labor market "remains the biggest issue facing our business", noting wage increases and overtime rates added $450 million in extra costs for the three months ending in August. "Overcoming these staffing and retention challenges is our utmost priority," said COO Raj Subramaniam, noting plans to add around 90,000 workers over the holiday period.
Looking into its 2022 fiscal year, FedEx said it sees adjusted earnings in the region of $17.75 to $21.50, a 75 cent reduction to its prior forecast.
"We are taking bold action across the enterprise to hire and invest in our frontline team members as we prepare for the peak season ahead," Subramaniam told investors on a conference call late Tuesday. "These actions include targeted paid premiums particularly for weekend shifts, increased tuition reimbursement, sponsorship of a national hiring day on September 23 as we seek to higher 90,000 additional positions ahead of peak, detailed volume and demand planning with customers to drive additional sorts to alleviate congestion and expanding network capacity."
FedEx shares were marked 8.65% lower in early trading Wednesday to change hands at $230.30 each, a move that would extend the stock's year-to-date decline to around 10%.
"While demand and pricing conditions are as good as they have been in decades, the company was challenged by tight labor market conditions, network inefficiencies, and expansion related investments, which muted the operating income contribution at both Ground and Express," said BMO Capital Markets analyst Fadi Chamoun, who carries a 'market perform' rating with a $300 price target on the stock.
"These challenges are expected to persist through peak season but measures to improve pricing and expectations of easing labor shortages should support a better outcome in H2/F22,' he called.