In a stunning move just a week before reporting its fiscal 2023 first-quarter results, FedEx Corp. late Thursday withdrew its financial guidance for the rest of its fiscal year, and updated its first-quarter earnings per share results to come in massively below analysts’ consensus forecasts.
The company said that adjusted earnings per share will come in at $3.44, a far cry from analysts consensus’ estimates of $5.14 a share. Adjusted operating income of $1.23 billion will be well below the $1.49 billion reported in the year-earlier period.
Revenue of $23.2 billion will be slightly higher than fiscal 2022’s first-quarter results. However, the combined revenue at FedEx Express, the company’s air and international unit, and FedEx Ground, its U.S. ground delivery unit, will come in $800 million below the company’s original forecasts.
FedEx Express took the brunt of the damage. Operating income plummeted to $186 million from $660 million in the fiscal 2022 first quarter. As a result, FedEx said it will cancel projects aimed at boosting its network capacity. It did not specify what projects would be canceled. However, it was reported that it will involve the company’s parking of an undetermined number of aircraft.
FedEx blamed the unit’s poor results on economic weakness in Asia and “service challenges” in Europe. The latter is not going to sit well with analysts and investors because the company has repeatedly pledged that it was finally past the problematic multiyear European integration of TNT Express.
FedEx said it plans to further reduce Sunday deliveries at an undetermined number of FedEx Ground locations. The unit had already reduced Sunday deliveries across about 10% to 15% of its ground network.
FedEx will also defer hiring activities, close more than 90 FedEx Office locations and shutter five corporate office facilities. The company reaffirmed plans to repurchase $1.5 billion of common shares during the fiscal year.
FedEx (NYSE: FDX) shares, which were down fractionally in Thursday’s regular session, were getting crushed in after-hours trading. As of 6:30 p.m. ET, the share price had dropped nearly 16%, losing about $33 a share.
The announcement comes five days before FedEx’s annual meeting at its Memphis, Tennessee, home base. It also comes as the company is under pressure from activist investor D.E. Shaw to boost shareholder returns. FedEx added two directors in June under an agreement with Shaw, and the hedge fund will have a say in the appointment of a third director at a later date.
FedEx executives said the demand weakness in the U.S. and internationally hit hard and fast toward the end of the quarter, and it was too late to take corrective action before the quarter ended.
The company said it expects the weak business climate to persist through the second quarter, which ends just as the holiday peak delivery season begins in earnest. It estimated revenue of $23.5 billion to $24 billion, and earnings per diluted share of $2.65 or higher. It cut its fiscal 2023 capital spending by $500 million to $6.3 billion.