Higher-than-expected inflation in the current quarter is putting pressure on costs, FedEx Chief Executive Officer Raj Subramaniam said during a conference call with analysts.
FedEx is the latest US company to sound the alarm amid weakening consumer confidence and potential fallout from President Donald Trump’s escalating trade war. The parcel company, considered an economic bellwether because of its exposure to a broad swath of the global economy, said its latest outlook assumes the global economic, political and trade environment doesn’t worsen any further.FedEx’s shares fell more than 5% in after-hours trading in New York. The stock had declined 12% this year through Thursday’s close.
Weakness from industrial customers is weighing on its services that cater to businesses, Chief Financial Officer John Dietrich said in a statement Thursday announcing the results. Volumes were also hit by the expiration of its contract to carry packages for the US Postal Service, which was expected.Trump’s tariff proposals — including one to revoke the so-called de minimis exemption for low-value shipments — have made package demand and profits especially difficult for FedEx to predict, said Bloomberg Intelligence logistics analyst Lee Klaskow.
“They throw a number out there and hope for the best,” Klaskow said in an interview. “At the end of the day, their ability to beat or come in short of expectations” depends on volumes.
Fiscal third-quarter profit of $4.51 a share also fell short of the $4.57 estimated by Wall Street. Subramaniam said in the statement that the company faced a “very challenging” operating environment in the period that included a shorter peak shipping season and severe weather.
Subramaniam is working to transform the company by combining its Express unit that ships parcels by air with its Ground delivery network. The broader industry has been suffering from a prolonged period of weakness due to cash-strapped customers spending on services rather than goods, and a growing preference for slower, cheaper delivery options instead of more profitable express shipping.
FedEx said it’s making progress on its plan to spin off its freight division as a separate publicly traded company. The move is intended to streamline the company’s operations so it can focus on its primary parcel business. Bloomberg Intelligence estimates that FedEx Freight as a standalone entity has an enterprise value of more than $30 billion.
