During their busiest point of the year, when trucks are rolling and more packages than ever are being delivered, FedEx stock is tumbling. The drop this week is due to lowered 2019 outlook and “weakened” international business in the current quarter. The change represents a stark contrast to FedEx’s view of the global economy just three months ago.
FedEx stock is down around 18 percent over the past week and is around 42 percent down from its all-time-high of $274 reached in January.
The company beat expectations in its second quarter earnings report at $4.03 per share compared to an expected $3.94, and met revenue expectations at $17.8 billion. Even with the impressive earnings, the lowered outlook sent the longs running for the hills, and for good reason. FedEx lowered their overall 2019 guidance from $12.65 to $13.40 to $15.85 to $16.45 a share.
“While the U.S. economy remains solid, our international business weakened during the quarter, especially in Europe. We are taking action to mitigate the impact of this trend through new cost-reduction initiatives,” said CEO Frederick W. Smith. The abrupt news comes in a time of great uncertainty with dampening oil prices and an ongoing trade war with China stifling international economic growth, while keeping the United States relatively insulated outside of stocks.
Smith directly cited political headwinds as the deciding factor in diminished global growth.
“Most of the issues that we’re dealing with today are induced by bad political choices,” Smith said, also citing issues such as economic policies and “the tariffs that the United States put in unilaterally.”
In addition to the U.S.–China Trade war, Smith referenced Brexit concerns, as the U.K. finesses their was out of the European Union and Germany and Italy “deterioration.”
“When you have a change that comes on you as fast as this did, it’s hard to react to it,” Chief Executive Officer Fred Smith said on the conference call. “Our international business, especially in Europe, weakened significantly since we last talked with you.”
As a cost cutting measure, FedEx announced that it would be implementing employee buyouts, which will total between $450 and $575 million in Q4 2019.
“The peak for global economic growth now appears to be behind us,” Raj Subramaniam, a FedEx representative, on a conference call.
According to Morgan Stanley analyst Ravi Shanker, the markets are blindsided by the news and the share price slip.
“We are very surprised by the magnitude of the headwind, which is what might be seen in a severe recession,” said Ravi Shanker.
With the current selloff, some analysts see a buying opportunity.
“We remain optimistic on U.S. trade and FedEx’s ability to offset weaker mix with lower costs,’’ CFRA analyst Jim Corridore said in a not to clients. “Plus we think the low valuation more than discounts this outlook.’’
The company is well positioned to benefit from this years surge in online shopping, according to the analyst. Currently, 67 percent of holiday packages are being delivered a day ahead of schedule and the company is operating at “record service levels.”