Delivery giant FedEx warns global trade is slowing

The package delivery industry is widely seen as a bellwether for the global economy.
The package delivery industry is widely seen as a bellwether for the global economy.PHOTO: REUTERS

NEW YORK (REUTERS) - FedEx Corp on Tuesday (March 19) cut its 2019 profit forecast for the second time in three months, saying "weaker global trade growth trends continue".

The profit warning and weak quarterly results were another blow to FedEx, which slashed its forecast in December citing a sharp downturn in worldwide trade.

The package delivery industry is widely seen as a bellwether for the global economy.

"Slowing international macroeconomic conditions and weaker global trade growth trends continue," FedEx Chief Financial Officer Alan Graf said in a statement on Tuesday.

FedEx also said it now expects to earn US$15.10 to US$15.90 for the 2019 fiscal year ended May 31. Analysts had predicted full-year fiscal 2019 earnings per share of US$15.97, on average.

The news sent FedEx shares down 5.5 per cent to US$171.36 in after-market trading.

Executives also blamed its earnings miss on the cost of launching year-round, six-days-per-week operations at FedEx Ground in the United States and continued weakness in its international Express business, which includes former Dutch delivery company TNT Express.

FedEx bought that struggling business in 2016 for US$4.8 billion and has had difficulties integrating it into its own network.

FedEx expects integration costs to exceed US$1.5 billion and said in a regulatory filing that it will complete a project allowing packages to flow between the FedEx Express and TNT Express networks by the end of 2020, more than four years after acquiring the Dutch delivery company.

Adding to those challenges, a 2017 cyberattack on TNT's European technology systems cost FedEx some US$300 million to fix and sent a number of high-value, time-sensitive customers into the arms of stronger operators in Europe.


"It's cutthroat over there," said Cathy Morrow Roberson, founder of consulting firm Logistics Trends & Insights. "FedEx Express has some serious problems."

Germany's Deutsche Post DHL earlier this month said it saw no noticeable signs of a slowdown on the horizon, adding that its broad geographic and operational base would make it resilient even if global economic growth weakened.

Atlanta-based UPS has less international exposure than FedEx and said in January that US results helped buffer the impact of global economic softening.

FedEx has shaken up management, including at its Express division, offered voluntary buyouts and limited discretionary spending to stem declines.

Profit for the fiscal third quarter that included FedEx's peak holiday shipping and gift return season fell to US$797 million, or US$3.03 per diluted share, below analysts' average estimate of US$3.11 per share, according to IBES data from Refinitiv.