Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Why Shares of FedEx Slumped This Week

By Lee Samaha - Sep 23, 2021 at 2:52PM

Key Points

  • Labor shortages, possibly related to the COVID-19 pandemic, are hurting the company financially.

Motley Fool Issues Rare “All In” Buy Alert

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 package delivery company shocked the market this week with its earnings report.

What happened

Shares of package delivery giant FedEx ( FDX -1.15% ) declined nearly 10% for the week as of 2 p.m. EDT Thursday. The move comes after a disappointing set of first-quarter 2022 earnings released on Tuesday.

The reason? FedEx missed analyst and internal company estimates in the quarter due to "constrained labor markets," according to management on the earnings call. In plain English, labor shortages caused higher costs incurred in hiring available workers and delivering packages at the transportation company

Delivery packages on a conveyor belt.

Image source: Getty Images.

COO Raj Subramaniam discussed the situation at the company's Portland hub, which is running "with approximately 65% of the staffing needed to handle its normal volume." Consequently, 25% of the volume that should run through the hub is being diverted because it "cannot be processed efficiently to meet our service standards."

Management said the impact on quarterly results was a whopping $450 million. Of this figure, $250 million was due to "network inefficiencies" created by labor shortages. These extra costs include using more third-party transportation, asset repositioning costs, and recruiting incentives. The remaining $200 million was for higher wages and "higher rates paid for third-party transportation service."

So what

The key question is whether the labor shortages are due to some temporary issues related to the COVID-19 pandemic, such as safety concerns and the difficulty of obtaining child care if schools and day care centers are closed -- or something more lasting.

If the situation isn't resolved soon, the market will ask questions about FedEx's performance in the upcoming holiday season, when peak delivery days will strain its network.

Now what

Frankly, this news is shocking and raises questions over package delivery company margins precisely when FedEx and UPS seemed to demonstrate they could grow margin with e-commerce deliveries. Therefore, cautious investors should monitor events to see whether the labor shortages and disruptions will be lasting or not.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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
$244.22 (-1.15%) $-2.84
United Parcel Service, Inc. Stock Quote
United Parcel Service, Inc.
$203.49 (-0.93%) $-1.90

*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 service.

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 12/08/2021.

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

Our Most Popular Articles

Premium Investing Services

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