FedEx (FDX.N) reported a significant decline in its quarterly profit and reduced its full-year revenue outlook on Thursday. This comes as customers are opting for more affordable and slower delivery options instead of the premium, faster services.
The Memphis-based shipping giant saw its stock fall by nearly 11% to $267.74 in after-hours trading, which also pulled down shares of its competitor, United Parcel Service (UPS.N), by 2.5%.
Both FedEx and UPS are facing profit pressures due to the shift toward less profitable packages. UPS attributed the shift to an influx of volume from Chinese e-commerce platforms such as Temu (PDD.O) and Shein, while FedEx highlighted a decline in priority shipments between businesses. CEO Raj Subramaniam noted that demand from the industrial sector was weaker than anticipated. These shipments between manufacturers, typically highly profitable for FedEx, are viewed as an indicator of the health of the U.S. economy.
Subramaniam also referred to the Federal Reserve’s recent half-percentage-point rate cut, signaling a challenging economic environment. He is currently overseeing a major restructuring effort at FedEx, aimed at reducing billions in costs and merging its Ground and Express units.
Despite cost-saving efforts, the company struggled to offset weak demand for its higher-margin priority services, compounded by having one fewer operating day in the latest quarter. FedEx now projects revenue growth in fiscal 2025 to be in the low single digits, a slight revision from its earlier forecast of low-to-mid single-digit growth.
The company also lowered its forecast for full-year adjusted operating income to a range of $20 to $21 per share, down from the previously anticipated $20 to $22 per share. Adjusted profit per share dropped to $3.60, compared to $4.55 a year earlier.
Additionally, FedEx is phasing out contract work with its largest client, the U.S. Postal Service (USPS), which will create a $500 million hit in the current fiscal year. The USPS contract, worth approximately $1.75 billion in revenue for FedEx in the postal service’s last fiscal year, will conclude on September 29, with UPS taking over that business. FedEx is also evaluating whether to spin off or sell its FedEx Freight division.
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