FedEx's Profit Miss and Lowered Outlook Warn This Holiday Season Has Been More Ho-Hum Than Ho-Ho

Last Tuesday, FedEx Corporation (NYSE: FDX) shares tumbled almost 10% as the delivery company reported fiscal second quarter results below expectations and lowered its full year guidance. FedEx’s disappointing figures also dragged down the shares of its rival, United Parcel Service Inc (NYSE: UPS) by 2.9% on the day of the report. On December 21st, UPS lost its court battle against EU antitrust regulators who blocked its 2013 bid for Dutch rival TNT for a record $1.90 billion compensation claim. EU antitrust regulators stopped UPS from acquiring TNT for 5.2 billion euro.

Quarterly Highlights

For the quarter ended on November 30th, FedEx reported revenue dropped almost 3% YoY to $22.2 billion. However, net income rose 14% YoY to $898 million. Adjusted earnings rose 23% to $1.01 billion or $3.99 per diluted share, 19 cents short of LSEG’s estimate. Both revenue and earnings missed analyst estimates.

Operating income tanked 60% at its air-based Express unit, partly owed to the falling volume from the U.S. Postal Service. U.S. Postal Service has been shifting more packages from higher-margin air services to their more economical ground alternatives. Operating income at FedEx's Ground division, known for delivering packages from Walmart (NYSE: WMT), rose 51%. A month ago, Walmart also provided a cautious holiday quarter outlook for consumer spending and its shares also tanked as a result. While its rival Target (NYSE: TGT) also raised its guidance, Walmart was more cautious despite providing a lifted outlook due to observing a weakening in consumer spending at the end of the latest reported quarter, just ahead of the holidays. Walmart was only one among many retailers who warned there’s a dark cloud hanging over the holiday shopping season. But, during the quarter, FedEx’s ground unit gained market share and retained virtually all the customers it poached from United Parcel Service ahead of the August 1st expiration of the contract that covered 340,000 United Brotherhood of Teamsters employees.

A Lowered Outlook

For the remainder of its fiscal year that will end on May 31st, FedEx is expecting the unfavorable macroeconomic environment to continue pressuring its revenue as these factors negatively affect customer demand for its transportation services. 

FedEx is negotiating a renewal of the post office contract, while focused on improving its business profitability. But there’s no sugarcoating the fact that the peak of the holiday shipping season that just ended on Christmas was everything but joyful as consumers grapple with persistent inflation and increased costs of housing, food and other necessities.

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