Faced with lower-than-expected revenue and declining volumes of packages moving around the world, FedEx announced that it is closing 90 offices, grounding some cargo aircraft and freezing hiring.
The announcement came about a week before FedEx is expected to report quarterly results. The company’s shares fell Thursday by as much as 19 percent in off-hours trading on the warning.
UPS shares also fell around 8 percent “in sympathy,” Yahoo News reported
“The FedEx news was pretty stark,” said Carl Riccadonna, chief U.S. economist at BNP Paribas, in a MarketWatch interview. But it’s in line with his view that a “massive deceleration” is underway in the U.S. economy, he said.
FedEx package volume has decreased since the boom in online shopping driven by the covid-19 pandemic, Wall Street Journal reported.
“People are buying less. They are paying more for air travel and other experiences,” said Satish Jindel, president of research firm SJ Consulting Group.
In a Sept. 15 press release update, FedEx said its lower-than-expected first quarter results were particularly impacted by macroeconomic weakness in Asia and service challenges in Europe.
“Global volumes declined as macroeconomic trends significantly worsened later in the quarter, both internationally and in the U.S.,” said Raj Subramaniam, FedEx president and CEO. “We are swiftly addressing these headwinds, but given the speed at which conditions shifted, first quarter results are below our expectation.”
A JP Morgan analyst said in a note to clients that competition from Amazon could have something to do with FedEx’s issues.
“It makes sense to see Amazon (trade off) with this but there could also be a competitive element going on here too,” JPMorgan’s Jack Atherton wrote. Amazon has discounted shipping rates, launched free shipping software for sellers, and “has piled money into its logistics capability over the past few years, to the point it has excess capacity for its own needs and is hungry for more share which … could be weighing on FedEx,” Atherton wrote.
The U.S. is technically in a recession — a commonly used definition triggered when a country’s real gross domestic product (GDP)—the most-watched indicator of economic activity—contracts for two or more consecutive quarters, as happened in the first half of 2022. Most economists agree that this defines a recession.
However, President Joe Biden and the Federal Reserve have been accused of recession denial and of trying to control the economic narrative. The White House has been reluctant to use the “R” word, pointing to underlying strength in jobs and the economy. A recession poses a problem for Democrats going into the midterm elections, which will determine the party that controls Congress.
Federal Reserve Chairman Jerome Powell repeatedly downplayed the risk of inflation in 2021 before finally admitting in December that he was retiring the word “transitory” to describe the inflationary outlook. In July, Powell was asked during a news conference whether he thought the economy was in, or headed toward, a recession. “And every time, he answered: No, not at all,” New York Times reported.
Subramaniam said he was taking actions to reduce costs at FedEx including closing five corporate offices and reducing Sunday ground operations. FedEx didn’t say if it was laying off workers.
Photos: President Joe Biden speaks to reporters after voting in the Delaware primary election, Sept. 13, 2022. (AP/Andrew Harnik) / Federal Reserve Chairman Jerome Powell attendst the central bank’s annual symposium at Jackson Lake Lodge,n Grand Teton National Parky, Aug. 26, 2022. Wyo. (AP /Amber Baesler) / Fed-Ex truck near Newark, NJ (STRF/STAR MAX/IPx 10/19/21)