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FedEx cuts 2020 profit forecast - again - as seven-day delivery costs weigh

Stock MarketsDec 17, 2019 08:17PM ET
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© Reuters. A Federal Express Ground truck travels down a highway through Carlsbad, California

By Lisa Baertlein

(Reuters) - FedEx Corp (NYSE:FDX) on Tuesday issued its second warning for fiscal 2020 profit as it spent heavily to launch Sunday delivery in time for the holidays, the continued tariff fight restrained global trade, and it grappled with fallout from its breakup with Amazon.com (NASDAQ:AMZN).

FedEx shares dropped 6.5% to $152.60 in extended trade after it also said the late arrival of Thanksgiving shifted revenue from Cyber Monday into December, hurting results in its quarter ended Nov. 30.

"We incurred peak ramp-up costs in Q2, with none of the revenue benefit," Rajesh Subramaniam, FedEx president said on a conference call with analysts.

"Our hopes for a restoration and trade growth expressed last June have simply not materialized due to the trade dispute," said Fred Smith, FedEx's founder and chief executive.

FedEx's adjusted net income fell 38.9% to $660 million, or $2.51 per share, for the fiscal second quarter, missing analysts' average estimate for a profit of $2.76 a share, according to IBES data from Refinitiv.

Operating margin in the FedEx Ground segment tumbled to 6.4% from 11.5% a year ago, largely related to the cost of adding Sunday, or 7-day, delivery.

At Express, its plane-focused fast delivery service, operating margin fell to 2.6% from 6.6% a year ago, after weak industrial production contributed to softness in its higher-profit commercial business.

In September, FedEx lowered its earnings forecast for the year ending May 2020, to $11 to $13 per share. On Tuesday, it cut that to $10.25 to $11.50 per share, citing missed revenue targets in all transportation segments and higher residential delivery costs.

This holiday season is six days shorter than last year, pressuring package delivery firms at a time when retailers are demanding speedier deliveries.

Sriram Sridhar, CEO of LateShipment.com, tracks last-mile deliveries and said data culled from clients suggest that FedEx is lagging rival United Parcel Service (NYSE:UPS) Inc's on-time performance in large cities like Los Angeles, Seattle, Boston and New York.

Up to 15% of FedEx ground packages are delayed in some of the worst-hit areas, said Sridhar, forecasting that by the end of the season FedEx could have 1%-2% more delays than UPS.

Amazon this week temporarily blocked certain third-party sellers from using the FedEx Ground delivery network to handle Prime shipments as the online retailer strives to hit accelerated delivery deadlines. FedEx this summer terminated its contracts with Amazon, which is building a competing logistics network.

FedEx cuts 2020 profit forecast - again - as seven-day delivery costs weigh
 

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Comments (3)
Howie Zoukl
Howie Zoukl Dec 18, 2019 7:58AM ET
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have anyone of you guys used FedEx for any deliveries? I agree with this article that FedEx service is slow, very slow.
Ibnu Adam
Ibnu Adam Dec 17, 2019 6:17PM ET
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Just bought PUT option...:)
Stefon Walters
AgapeGrace Dec 17, 2019 6:17PM ET
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Excellent timing.
Stefon Walters
AgapeGrace Dec 17, 2019 6:02PM ET
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Uh oh. Here comes the market correction. Perma bulls will be stampeded soon.
I Short Retail traders
I Short Retail traders Dec 17, 2019 6:02PM ET
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lol, perma bulls are hedged and still sit on 10 Trillion in cash.. learn math.
Stefon Walters
AgapeGrace Dec 17, 2019 6:02PM ET
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I Short Retail traders Well if you are hedged, then you are not a perma bull by definition. Learn the ability to read and proper logic. And the “10 trillion cash on the sidelines to buy” is a false theory. For every buyer there is a seller. Learn actual financial & market mechanism facts.
 
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