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FedEx cuts 2019 view on European softness, global trade cool-down

FedEx cuts 2019 view on European softness, global trade cool-down
FILE PHOTO: A federal Express freight truck is pictured in Irvine, California, U.S., January 24, 2017. REUTERS/Mike Blake/File Photo   -   Copyright  Mike Blake(Reuters)
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By Lisa Baertlein

(Reuters) – U.S. package delivery company FedEx Corp <FDX.N> on Tuesday cut its 2019 forecast after Europe’s economy weakened and trade skirmishes exacerbated a slowdown in China, sending its shares tumbling 6 percent in after-hours trade.

“Global trade has slowed in recent months and leading indicators point to ongoing deceleration in global trade near-term,” FedEx Chief Financial Officer Alan Graf said.

Executives pointed to flashing signs around the world, calling out a sharp UK slowdown due to Brexit uncertainty, Germany’s recent gross domestic product contraction and “yellow vests” unrest in France that threatens to spread to nearby nations.

FedEx is a bellwether for the global economy and the results fueled concern that the United States may catch the “cold” affecting other regions, said Trip Miller, managing partner at Memphis-based Gullane Capital.

“This confirms a lot of market fears… and is probably why the (stock) market has been off so much,” said Miller.

Memphis-based FedEx cut its fiscal 2019 earnings forecast to $15.50 to $16.60 per share, before year-end mark-to-market retirement plan accounting adjustments and excluding TNT Express integration expenses. It previously forecast earnings of $17.20 to $17.80 per share.

The tempered outlook landed as FedEx grapples with ongoing margin pressure at its Express and Ground units and speculation that Inc <AMZN.O> will attack its own mounting transportation costs by investing in a competing delivery network.

Its new forecast assumes moderate U.S. domestic economic growth and no further weakening in international economic conditions from the current forecast, FedEx said.

“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,” Frederick Smith, FedEx chief executive officer, said in a statement.

FedEx said it is offering voluntary buyouts to certain employees, reducing international capacity at FedEx Express, limiting hiring and cutting discretionary spending. It is also reevaluating its capital spending plans and share buybacks.

“We remain committed to actively managing costs with a heightened focus on increasing efficiency across the organization,” Graf said.

FedEx profit rose to $935 million, or $3.51 per share, for the second quarter ended Nov. 30, up from $775 million, or $2.84 per share, a year earlier.

Revenue rose to $17.8 billion from $16.3 billion.

FedEx shares were down $11.01 to $185.01 following the report.

(Reporting by Lisa Baertlein in Los Angeles and Uday Sampath in Bengaluru; Editing by James Emmanuel, Matthew Lewis and Dan Grebler)

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