Last week, FedEx’s (FDX) historic 15% daily drop may indicate a red flag warning for investors. The weak revenue from package delivery might indicate that the U.S. is entering a recession.
In the first quarter, FedEx posted an adjusted profit of $3.60 a share. This fell from $4.55 last year. Revenue of $21.7 billion did not change Y/Y. The negative shift in the revenue mix is worrisome. The firm introduced demand surcharges over the last few years. In return, customers received better service.
This year, FedEx needed to charge extra during peak periods. Unfortunately, customers may alter their spending patterns with the company.
The B2B business risks a lag. The firm incurred headwinds from the termination of the U.S. Postal Service contract. Looking ahead, the timing of Cyber Week will hurt Q2 results.
Instead, it will push into Q3 results. Until then, the firm needs to rely on cost savings and actions to increase its revenue. This increases the uncertainties in FedEx’s business strength.
For the year, FedEx is targeting a $2.2 billion savings rate.
In international markets, higher transportation costs hurt its profitability. Freight costs are higher. For example, costs for its commercial airline haul capacity rose to $120 million.
Wait for six months before FedEx demonstrates its turnaround.
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