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FedEx warns of global recession, cuts sales forecast by $500 million

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shares of fedex (FDX) It plunged 22% in early trading Friday after opening after warning late Thursday that it would fall short of its earnings target by $500 million due to a slowing economy. A weakening global economy, especially in Asia and Europe, is hurting FedEx’s express delivery business. Demand for packages weakened significantly in the last few weeks of the quarter, according to the company.

FedEx said it expects the economy to deteriorate further in the current second quarter, which runs through November. Global earnings are likely to remain flat this quarter compared to last year, while FedEx earnings are expected to plunge more than 40%. Analysts had predicted an increase in profits.

In an interview on CNBC on Thursday, FedEx CEO Raj Subramaniam was asked if he thought the slowdown in his business was a sign of the beginning of a global recession.

“I think so,” he replied. “These numbers don’t bode well.”

He said the volume of shipments handled by FedEx is declining in all regions of the world. He said US consumers are to some extent protected by the strong dollar, which is increasing purchasing power, but said FedEx is also seeing a slowdown in US spending.

The company said it was responding by reducing flights and temporarily parking aircraft, reducing staff hours, postponing some hiring plans, and closing 90 FedEx offices and five corporate offices. . He also cut $500 million from the capital spending budget for the fiscal year ending May 2023, cutting that spending to $6.3 billion.

“We’re in full cost control mode,” he told CNBC.

fedex (FDX) said adjusted revenue for the quarter ended August 31 was down $260 million, or 17%, from the year-ago quarter. Revenue increased by $1.2 billion, or 5%, despite the company missing its previous targets.

FedEx has significantly lowered its guidance for the quarter, but said it was withdrawing its full-year guidance issued in June “due to the continued volatile business environment.

FedEx Ground service, the company’s primary method of handling the delivery of online purchases by U.S. consumers, fell short of its sales target by $300 million.

The company uses independent contractors rather than employees to make deliveries, and many of these contractors have found their business unprofitable due to rising costs of fuel, labor and new vehicles. Some companies are threatening to suspend operations on Black Friday, just before the holiday shopping season begins, unless FedEx agrees to change their coverage.

FedEx claims to work with contractors who have problems. It sued its former contractor, which has been the company’s most vocal critic.

In a statement last month, FedEx Ground said, “We recognize that the current economic climate presents new challenges. We remain committed to addressing challenges and our goal is to enable both FedEx Ground and service providers to succeed.”

Approximately 1,000 of the 6,000 contractors who work for FedEx join trade associations to lobby the company for better compensation.

A survey conducted by the association released this week found that 54% said they were losing money trading with FedEx, 35% said they were breaking even, and just 11% said they were profitable. did. The survey reached 1,200 of his contractors who either work for the company or have left the company within the past 12 months, the association said.