Please ensure Javascript is enabled for purposes of website accessibility

FedEx Suspends Guidance, Boosts Cash Reserves

By Lou Whiteman – Apr 3, 2020 at 11:02AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company warns profitability will take a hit from pandemic-related activites.

FedEx (FDX -3.37%) 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.

A FedEx delivery van driving on a city street.

Image source: FedEx.

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.

Lou Whiteman owns shares of FedEx. The Motley Fool owns shares of and recommends FedEx. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

FedEx Corporation Stock Quote
FedEx Corporation
$149.33 (-3.37%) $-5.21

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.