FedEx said Thursday it is shuttering storefronts and corporate offices while putting off new hires in a belt-tightening drive brought on by drop-off in its global package delivery business.
The company based in Memphis, Tennessee, warned it will likely miss Wall Street’s profit target for its fiscal first quarter that ended Aug. 31. And it said it expects business conditions to further weaken in the current quarter amid weaker global volume.
Its stock fell more than 20% in after-hours trading following the announcement.
“Global volumes declined as macroeconomic trends significantly worsened later in the quarter, both internationally and in the U.S.,” FedEx CEO Raj Subramaniam said in a statement. “We are swiftly addressing these headwinds, but given the speed at which conditions shifted, first-quarter results are below our expectations.”
The company’s FedEx Express business was particularly hurt by challenges in Europe and weaker economic trends in Asia, which led to a roughly $500 million revenue shortfall for the segment. FedEx Ground revenue, meanwhile, came in about $300 million below the company’s forecasts.
High operating expenses were also a drag on the company’s results, FedEx said. In response, it said it will cut costs by closing over 90 FedEx Office locations and five corporate offices, deferring new hires and operating fewer flights.
The company scrapped its forecast for its earnings in its current fiscal year that it had issued less than three months ago. For the three months ended Aug. 31, FedEx now projects adjusted earnings per share of $3.44 and $23.2 billion in revenue. That’s below analysts’ consensus forecast of $5.14 adjusted earnings per share and $23.6 billion in revenue, according to FactSet.
Stocks continue swoon
News of FedEx’s poor results appeared to spook investors, denting overseas markets and sending U.S. stock futures sharply lower. The S&P 500 index was down nearly 1% ahead of the start of trade on Friday. Dow and Nasdaq futures were down 0.8% and 1% respectively.
Investor sentiment has soured this week after government data on Wednesday showed that inflation remained hot in August, setting the Federal Reserve up for another sharp hike in its benchmark interest rate next week.
“The bears demolished the bulls for three main reasons: the Aug CPI overshot expectations, Fed tightening forecasts continued to rise, and FedEx described an economy witnessing a sharp slowdown,” Wall Street analyst Adam Crisafulli said in a research note on Friday.