FedEx shares tumbled just days after Amazon banned use of the company’s ground delivery services use by third party retailers.
Investors also were responding to a disappointing quarterly earnings report, which showed FedEx struggling from a slowdown in its international air shipping business.
Shares were down $16.45 or 10.08 per cent, to $146.78 in afternoon trading Wednesday and had their worst one-day percentage drop since the depths of the recession in 2008.
The FedEx stock price slid down to $23.67, or 13.7 per cent, to $146 in afternoon trading Wednesday. That’s the stock’s worst one-day percentage drop since the depths of the recession in 2008. The declines worsened (pictured) as the afternoon moved on
FedEx shares tumbled just days after Amazon banned use of the company’s ground delivery services use by third party retailers
The market reaction comes after FedEx was still reeling from Amazon’s decision to stop using the company’s ground services for third-party retail sales.
The new policy was announced in an email Amazon sent to third-party retailers on Sunday. The move also comes after Amazon decided to discontinue use of FedEx Ground service for its own internal shipments earlier this year.
According to a Wall Street Journal report, the previous partnership between Amazon and FedEx had brought the shipping company an estimated $900 million in revenue.
The ban was to go into effect this week and will continue, Amazon says, ‘until the delivery performance of these ship methods improves.’
The online retailer’s ban was not encouraging as FedEx also was ending the first quarter of its fiscal year on Tuesday with a profit decline of 11 per cent to $745 million, missing Wall Street expectations.
An Amazon employee readies a shipment at Campbellsville, Kentucky, warehouse (file image). The online retailer likely won’t be using FedEx for delivery until delivery issues are resolved
Net income for the delivery giant was $660 million for the three months ending November 30, down almost 40 per cent from the same period last year
Revenue fell to $17.3 billion from $17.8 billion over the same time period, reported FedEx.
That news alone late Tuesday caused shares in FedEx to drop 7 per cent in after-hours trading Tuesday.
‘We are at the bottom’, Chief Financial Officer Alan Graff Jr. said in an earnings call with Wall Street analysts, reports CNN Business.
‘Our adjusted operating profit year-over-year is horrific’, he explains, suggesting that improvement will come later in the third and fourth quarters.
FedEx Chief Financial Officer Alan Graff Jr. said in an earnings call that ‘Our adjusted operating profit year-over-year is horrific’, but suggests improvement will come later in the third and fourth quarters
‘We’re going to come up off the mat and improve through the course of this year and into the next’, he said.
The company’s predicted full-year adjusted earnings was $11 to $13 per share, well below analysts’ $14.68 prediction.
UBS analyst Thomas Wadewitz says pressure on FedEx profit margins is likely to increase and there’s no relief in sight for high capital spending.
In addition to losing Amazon, FedEx took a bruising partly because of ongoing trade disputes that have cut into its international business.
Add to that a later Thanksgiving, which cut into potential delivery sales had their been a longer, holiday shopping season.
Income also was hit by rising costs tied to the company’s efforts to grow its Saturday and Sunday shipping services, reports CNN Business.
CEO Frederick Smith said the company has seen an ‘unbelievable response’ from customers to the growth weekend shipping services.
CEO Frederick Smith said the company has seen an ‘unbelievable response’ from customers to the growth of six- and seven-day shipping services
It’s still too early to tell if investors will be convinced.
One analyst on the call Tuesday asked why the company hadn’t considered drastic cost-cutting measures, such as laying off employees, reports CNN Business.
Smith replied that he’s confident the company can turn around, and wants to have all its resources available when it does.
‘We are disappointed with our current results but we are optimistic’, Smith said.
When asked why FedEx chose against layoffs, CEO Frederick Smith said he’s confident the company can turn around, and wants to have all its resources available when it does. FedEx vehicles depart a facility in Cranberry Township, Pennsylvania (file art)