CNBC’s Jim Cramer said that FedEx Corp. CEO Fred Smith is “basically implying that we’re going to import” a global slowdown.
FedEx disappointed shareholders again by slashing its profit outlook, and Wall Street’s patience is running out.
At least four analysts downgraded the shares, sending shares tumbling by the most in four years. While FedEx said trade tensions were weakening the global economy and sapping demand for parcel deliveries, the company’s critics emphasized “elusive’’ business execution, an insufficient grip on costs and “acquisition debacles.’’
Smith expressed extreme pessimism about the global economy on the delivery giant’s post-earnings conference call with analysts, CNBC.com explained.
“I think there is a lot of whistling past the graveyard about the U.S. consumer and the United States economy versus what’s going on globally,” CNBC quoted Smith as saying on the call with analysts.
“This is the most dispiriting call about the economy I’ve heard in a very long time,” Cramer said Wednesday. Smith was “basically implying that we’re going to import that slowdown,” the “Mad Money” host added.
Investors’ mounting frustration underscored FedEx’s inability to keep up with even its own weakening expectations. The company has been making a habit of cutting its earnings forecast or missing analysts’ estimates while trailing the shareholder returns of rival United Parcel Service Inc. In addition to economic headwinds, FedEx is walking away from most business with Amazon.com. Inc. and still struggling to integrate a Dutch company it acquired in 2016.
“This is, I think, the fifth straight quarter of either missing numbers or cutting guidance,’’ Wolfe Research’s Scott Group told FedEx Chief Executive Officer Fred Smith and other company leaders on a conference call late Tuesday. “We need some hand-holding here.”
The shares (FDX) plunged 14% to $148.55 at midday Eastern on Wednesday in New York after sliding to as low as $148.50 for the biggest intraday decline since August 2015. UPS fell only 1.9% while Deutsche Post AG slipped 1.5%.
FedEx’s tumble wiped out its year-to-date gain. Even before the drop, the shares were already lagging UPS and a Standard & Poor index of U.S. industrial companies.
FedEx blamed the profit warning on global economic weakness “driven by increasing trade tensions and policy uncertainty.”
Still, FedEx analysts said there’s a limit to the blame that the Memphis, Tennessee-based company can heap on the economy.
Citigroup Inc. analyst Christian Wetherbee called the outlook cut “drastic.” KeyBanc Capital Markets analyst Todd Fowler cut FedEx to hold from buy, saying the company’s execution of its strategy has been “elusive.”
Deutsche Bank AG’s Amit Mehrotra, who also downgraded the stock to hold, sounded a similar note and said the company had spent too much on planes for its Express air-shipping business.
“In reality, FedEx’s release is largely the result of many management missteps over the years, including overspending on aircraft despite weaker returns in Express over the long-term, and acquisition debacles,” Mehrotra said.
The weaker outlook underscored the hurdles for FedEx as the company introduces costly changes to its ground network to handle surging e-commerce deliveries while contending with rising competition from Amazon.com Inc. FedEx failed to renew contracts with Amazon for U.S. ground deliveries and air shipments as the e-commerce retailer builds out its own transportation network.
FedEx stuck with its plan to invest $5.9 billion for fiscal year 2020, which ends in May, and will probably match that in 2021, Chief Financial Officer Alan Graf said on the call. The company needs to spend on more fuel-efficient aircraft and to modernize sorting hubs, Graf said.
But to reduce capacity at the Express air-shipping network, FedEx will retire as many as 20 older planes and park additional jets as it adjusts to the weaker economic outlook. The company already announced a $575 million employee-buyout program in January.
Material from Bloomberg and Reuters has been used in this report.
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