FedEx (NYSE:FDX) said Friday it was suspending guidance and plans to draw down $1.5 billion from a credit facility to reinforce its balance sheet as it attempts to weather the COVID-19 coronavirus pandemic-related global slowdown.
Shares of FedEx are down more than 20% year to date on concerns the pandemic would slow industrial production -- and with it, shipping volumes. The company said Friday in a regulatory filing that global business-to-business demand has been negatively impacted by the COVID-19 pandemic, while lower-margin U.S. ground demand has increased as more U.S. consumers rely on e-commerce.
The shift is expected to crimp margins and operating results.
FedEx said "we remain well positioned" to adjust to changing market conditions, but said those adjustments are likely to impact profitability.
"We are flexing our network and making adjustments as needed to align with volumes and operating conditions," the company said in the filing. "We are taking additional measures and incurring additional expense to protect the health and safety of our employees, contractors, and the public and are working with customers to accommodate special requests around modified store hours, closings, and delivery alternatives to comply with applicable government restrictions and safety guidance."
In addition to drawing down available credit lines FedEx is also tapping debt markets to build its cash reserves. The company said it expects to stay in compliance with debt covenants for now, "however, if we secure additional financing or experience a deterioration in results of operations that would cause us not to be in compliance with the covenant, we would have to seek to amend this covenant."
The company is looking for areas to cut expenses, including reducing CEO Fred Smith's salary by 91% through Sept. 30.
FedEx and other shipping companies also hope to receive assistance as part of the $2 trillion economic stimulus package passed by lawmakers last week.