With demand from the US Postal Service declining for its main Express business, FedEx saw a 9.8% decline in share price on Tuesday after cutting its full-year revenue prediction and reporting a quarterly profit that significantly missed analysts' projections.
Following Tuesday's close at $280, the shares of the global delivery company dropped to $252.58 during extended trading. Shares of competitor United Parcel Service were also affected and fell by 2.9%.
In the quarter that concluded on November 30, FedEx reported that its adjusted earnings increased by 23% to $1.01 billion, or about $3.99 per diluted share. LSEG data, however, show that the outcome was 19 cents per share below analysts' expectations.
FedEx stated in a regulatory filing that they anticipate revenue to remain under pressure for the rest of the fiscal year that finishes on May 31 due to unstable macroeconomic situations that adversely affect customer demand for their services across all of their transportation companies.
Compared to its previous estimate of roughly identical results, FedEx now anticipates a low-single-digit percentage decrease in its revenue from the previous year.
FedEx stated that it plans to repurchase another one billion dollars of common stock within fiscal 2024, giving a nod to shareholders who have put pressure on the company to reduce costs and increase profits.
The firm's air-based Express unit saw a 60% decline in operating earnings during the quarter, which was partly because of the decline in volume from the US Postal Service, which has been transferring more packages from air services to more affordable ground services.
In an effort to increase business profitability, FedEx is in negotiations for a renewal of the post office contract. During a conference call with analysts, FedEx's chief customer officer, Brie Carere, stated that renewing that would require a fairly significant change in the terms of the contract and agreement.
The company was questioned by analysts about how it intended to significantly raise the Express division's stubbornly low profitability.
David Vernon, a Bernstein analyst who said that he was conveying investor concerns, questioned whether it was possible to make this margin profile better.
FedEx chief executive officer Raj Subramaniam said that he is very optimistic that the margin of Express will return after the company reorganizes those operations and customer demand comes back.
In other news, FedEx's Ground unit saw a 51% increase in operating revenue during the quarter. FedEx Ground is well-known for distributing packages from Walmart and other customers.
According to FedEx, Ground increased its market share during the quarter and kept almost all of the clients it obtained from United Parcel Service before August 1 expiration of the contract that covers UPS's 340,000 United Brotherhood of Teamsters workers.
The call was made during the busy holiday shipping season, which runs from late November to Christmas. This year's holiday season is expected to be unremarkable due to consumer concerns about inflation and rising prices for housing, food, and other essentials.