FedEx Lowers Sales Forecast for Fiscal 2024

Shares of FedEx Corp. (FDX) dropped in after-hours trading on Tuesday following the company's announcement of a trimmed sales forecast for its fiscal year 2024. Concerns about subdued shipping demand during the peak holiday season have raised doubts about the company's growth prospects.

Revised Sales Outlook

FedEx now anticipates a "low-single-digit percentage decline" in sales for fiscal 2024, revising its previous forecast of "approximately flat" sales growth. This update has disappointed investors, leading to a 6.6% decline in shares after hours.

Second-Fiscal-Quarter Performance

The company reported a second-fiscal-quarter net income of $900 million, or $3.55 per share, compared with $790 million, or $3.07 per share, during the same quarter last year. Adjusted for "business-optimization costs," FedEx earned $3.99 per share, slightly missing expectations.

Sales for the quarter came in at $22.2 billion, down from $22.8 billion in the previous year. Analysts polled by FactSet were expecting FedEx to report adjusted earnings per share of $4.19, on revenue of $22.36 billion.

Concerns and Challenges

Amidst the peak holiday-shopping and shipping season, analysts have expressed concerns about the impact of higher-priced basics on demand for holiday gifts. Shipping volumes during the quarter were likely still subdued, according to BofA analysts.

Furthermore, within FedEx's business segments, while volumes rose in the Ground delivery business, they fell in the Express segment.

Competitive Landscape

FedEx's results were reported following labor negotiations at rival United Parcel Service Inc. (UPS) and Yellow Corp.'s bankruptcy filing, both of which have disrupted the shipping industry this year.

FedEx managed to pick up some of the business lost by UPS during its negotiations with the Teamsters union. However, the increased competition and potential for a rise in wages at FedEx could impact the company's profitability.

Cost-Cutting Measures

To counterbalance potential challenges, FedEx has implemented cost-cutting plans. The company aims to reduce costs by $6 billion by fiscal 2027 through operational streamlining and consolidation of its air, ground, and other services. The full implementation of this unification plan is expected to take place in June of next year.

Despite the challenges posed by higher prices for consumer goods, FedEx's stock has shown resilience this year. Shares are up 58.7% year-to-date.

In conclusion, FedEx's lowered sales forecast for fiscal 2024 and concerns about shipping demand have led to a decline in share prices. The company continues to face challenges in a competitive market and is implementing cost-cutting measures to improve its profitability. However, with ongoing uncertainty in the shipping industry, the company's future performance remains a point of concern.