FedEx announced it would suspend its 2020 outlook on Tuesday.Matt Rourke/The Associated Press
U.S. package delivery company FedEx Corp. suspended its 2020 profit outlook on Tuesday, citing the “significant impact” of the coronavirus, and said it would cut costs because of the uncertainty wrought by the pandemic.
Even so, the company reported quarterly revenue that beat market expectations as more businesses turned to its international express plane service to safeguard their supply chains as COVID-19 illnesses and deaths mount around the world.
Shares in FedEx surged as much as 5 per cent before falling 0.5 per cent to US$94.50 in after-the-bell trading.
“The reaction to their release is a bit like driving looking through the rear-view window,” said Trip Miller, managing partner at Memphis-based Gullane Capital Partners. “There wasn’t much in there for me to feel positive about FedEx or anybody else in the next 60 days.”
FedEx joined Denmark’s DSV Panalpina, a major transportation and logistics provider, in suspending profit forecasts because of unprecedented business disruption from the virus.
FedEx, which benefited from U.S. President Donald Trump’s corporate tax cut, submitted a request to the U.S. government for “liquidity support,” chief financial officer Alan Graf said on a conference call with analysts.
The package delivery company’s adjusted net income dropped 53.5 per cent year over year to US$371-million, or US$1.41 a share, for the fiscal third quarter ended Feb. 29. Revenue rose about 3 per cent to US$17.5-billion.
Analysts on average expected earnings of US$1.41 a share and revenue of US$16.9-billion, according to Refinitiv IBES data.
The company – whose rivals include United Parcel Service Inc. and Amazon.com Inc.’s homegrown delivery operation – was grappling with the integration of its TNT Express unit, higher costs related to launching Sunday home delivery, and the loss of Amazon as a customer before the deadly virus outbreak began.
Executives see opportunity in surging e-commerce spending as governments in Europe and the United States urge people to hunker down at home to reduce the spread of the virus. Rampant international passenger flight cancellations already have been a boon for the lucrative express business at FedEx, they said.
“It’s like Christmas right now on the express side. They’re moving all sorts of supplies and equipment,” said Dean Maciuba, a director at Logistics Trends & Insights.
FedEx is attacking costs by restructuring the company to move more express packages through its ground network, Mr. Maciuba said. But it still lags UPS, whose integrated express and ground network is more efficient.
“I do believe it’s a turnaround story, but it’s going to take forever,” Mr. Maciuba said, adding that it could take up to three years to get FedEx margins back to 7 per cent to 8 per cent from less than 3 per cent today.
Mr. Miller, of Gullane Capital, said that FedEx’s stock is trading at roughly the same level as 15 years ago. “The top 5 executives, plus the board, have made [US]$870-million over the last 15 years, while shareholders have made nothing,” he said.