- FedEx shares rose after the company topped Wall Street’s profit forecast.
- Still, analysts were wary of the package giant’s tepid guidance due in part to global trade challenges.
- "We’ve been very disappointed over the last few years with the assumptions that we made on the growth in international trade, particularly with the Trump administration," FedEx CEO Fred Smith said on the earnings call.
- Track FedEx shares here in real-time.
FedEx shares rose modestly on Wednesday after the company topped analysts’ profit forecasts. But those results were overshadowed by executives sounding off the negative impact from the trade war, slowing global growth rates, and abandoning a fast-shipping contract with Amazon.
"We’ve been very disappointed over the last few years with the assumptions that we made on the growth in international trade, particularly with the Trump administration," CEO Fred Smith said on the earnings call with executives and analysts. "The United States policy since 1934 with Roosevelt and the Secretary of State Cordell Hull was to expand international trade."
Smith added: "We faced weakening international revenue growth, driven by the slowdown in global trade, less favorable service mix of TNT Express business after the NotPetya cyber attack and continued rapid growth of e-commerce demand."
The results, which follow a similarly cautious report last quarter, underscore the ongoing pain and uncertainty US businesses are forced to grapple with as the Trump administration’s international trade disputes drag on. They also highlight a company in the throes of change as Amazon’s growth transforms the logistics landscape.
Here’s what FedEx reported, compared with what analysts polled by Bloomberg expected:
- Revenue: $17.8 billion versus $17.8 billion expected.
- Adjusted earnings per share: $5.01 versus $4.81 expected.
- Capital expenditures in 2020: $5.9 billion versus $6.16 expected.
Other executives were quick to convey to investors that the Trump administration’s trade war is hitting them — and hard.
"Global trade has slowed as trade frictions have exerted a negative impact on sentiment and of course the manufacturing sector," said Brie Carere, the company’s marketing chief. "As the Chinese economy has continued to decelerate, this has also impacted other Asian markets export performance."
Meanwhile Alan Graf, FedEx’s CFO, expects weakness ahead in the company’s "Express" segment.
"Our strategic decision to not renew the FedEx Express U.S. domestic contract with Amazon will also be a near-term headwind, which we expect to reverse to a positive in FY 2021, as we replace the lost volume and optimize the network," Graf said.
The Memphis, Tennessee-based company called for a mid-single-digit decline in earnings per share next year. That amounts to a 5% annual drop, noted Allison Landry, an analyst at Credit Suisse. As a result, she reduced her earnings estimates for 2020 and 2021, and chopped down her price target to $175 from $184.
"Given FDX’s historical track record for setting an optimistic outlook, we were a bit surprised at the FY20 guidance," Landry, who maintained her "outperform" recommendation, wrote in a report to investors on Wednesday.
Others on Wall Street echoed Credit Suisse’s cautious tone on the stock.
The company’s fourth quarter results and 2020 guidance were better than Brandon Oglenski, an analyst at Barclays, feared. But on Wednesday he told investors he struggles to find "much to be excited about" given another year of limited cash flow and compressed margins.
"While near-term risks remain, we still see plenty of future opportunities for FedEx to optimize margins and returns, keeping us involved in an otherwise messy story," Oglenski, who carries a bullish rating on FedEx, wrote.
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Earlier this week, FedEx filed a lawsuit against the Trump administration over the US Commerce Department’s restrictions on trade with the Chinese telecommunications company Huawei and other blacklisted companies.
FedEx said in its complaint that it was far too difficult to comply with the government’s newly imposed export laws, and that screening packages to find out whether they contain restricted items is not feasible.
In another major development for the company, FedEx earlier this month said it would not renew a contract related to its Express shipping business with the e-c0mmerce giant Amazon. The severed partnership would not impact Amazon’s partnership with FedEx’s Ground delivery business, Business Insider’s Dennis Green reported.
Wall Street analysts, typically a bullish bunch, remain confident in FedEx shares despite the 33% annual decline. Of those surveyed by Bloomberg, 21 recommend "buy," seven recommend "hold," and two recommend "sell."
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