What happened
FedEx (FDX -1.09%) withdrew its guidance for the year and warned its fiscal first quarter would come in well below expectations. The stock plunged as a result, trading down as much as 25% on Friday morning.
So what
FedEx was not expected to report earnings until next week, but late Thursday after markets closed the global shipping giant preannounced the results for its fiscal first quarter ending Aug. 31 and issued a grim warning about the global economy. The company said it expects to earn $3.44 per share in the quarter, well below analyst expectations for $5.14 per share in earnings.
FedEx also warned it expects to earn as little as $2.65 per share in its fiscal second quarter, compared to analyst expectations for $5.48 per share in earnings. The company said it was withdrawing guidance for the full year due to the uncertain economic environment.
"Global volumes declined as macroeconomic trends significantly worsened later in the quarter, both internationally and in the U.S. We are swiftly addressing these headwinds, but given the speed at which conditions shifted, first quarter results are below our expectations," CEO Raj Subramaniam said in a statement. "While this performance is disappointing, we are aggressively accelerating cost reduction efforts and evaluating additional measures to enhance productivity, reduce variable costs, and implement structural cost-reduction initiatives."
Those cost-cutting initiatives include reducing airplane flying hours, cutting Sunday operations at some ground locations, deferring hiring, and closing more than 90 FedEx Office retail locations.
Now what
Analysts reacted with at least three downgrades and a flurry of price target reductions. While most had been expecting some demand softening due to a slowing global economy, few expected the drop to be so dramatic.
FedEx historically has been a top operator, but the company appears ill prepared to head into a downturn at this moment. This is also a pivotal time for Subramaniam, who took over for founder and longtime CEO Fred Smith back in June.
FedEx has survived many economic cycles in the past, and there is no reason to believe the company can't survive whatever lies up ahead. But given the magnitude of the miss, and the uncertainty about what is coming in the months ahead, investors understandably prefer to head to the sidelines right now.
