As FedEx shares crash after brutal profit warning, analyst points to Amazon lurking

As FedEx shares crash after brutal profit warning, analyst points to Amazon lurking

FedEx has jumped three tires for the holiday peak season, and the chatter on the street is that the mighty Amazon may have played a role.

“It makes sense to see Amazon going for it, but there could also be a competitive element to it,” JPMorgan’s Jack Atherton wrote in a note to customers. Coincidentally, Amazon’s seller conference has been going on for the past 2 days, which has focused heavily on new features for Buy with Prime, while further attempting to break Shopify’s moat. Amazon also launched free shipping software for sellers and reduced shipping costs. Amazon has been piling money into its logistics capabilities in recent years, to the point that it has excess capacity for its own needs and is hungry for more market share that is targeted through FBA (Fulfillment By Amazon) and could weigh on FedEx. here.”

FedEx presented a brutal pre-announcement of earnings after the close of trading on Thursday, causing stocks to crash. The logistics giant’s ticker page was the most visited on the Yahoo Finance platform after the warning, underscoring the severity of the disappointment.

Rival UPS shares also fell about 7% in sympathy as investors read through the company that it could issue a lackluster quarter (or pre-announcement) in October.

Here’s a rundown of the egg FedEx put to investors — which contradicts the optimism thrown by the company’s executives during a closely watched investor day in June.

FedEx’s first fiscal quarter was fairly flat.

The current quarter also seems to have started weakly.

It’s also worth noting…

Key Aspects of the FedEx Profit Smell:

  • Significant weakness in Asia and Europe.

  • The costs are too high given the slowing economic growth worldwide.

  • Execs were just too optimistic.

On August 7, 2019, a FedEx van is seen in Fort Lauderdale, Florida, the day FedEx announced it would stop delivering ground shipments for the Amazon company.  (Photo by Joe Raedle/Getty Images)

On August 7, 2019, a FedEx van is seen in Fort Lauderdale, Florida, the day FedEx announced it would stop delivering ground shipments for the Amazon company. (Photo by Joe Raedle/Getty Images)

Here’s what the new FedEx CEO Raj Subramaniam had to say:

“Global volumes declined as macroeconomic trends deteriorated significantly later in the quarter, both internationally and in the US. We are tackling these headwinds quickly, but given the speed with which conditions are shifting, Q1 results are below our expectations. While this performance is disappointing, we are aggressively accelerating cost reduction efforts and are evaluating additional measures to increase productivity, reduce variable costs and implement structural cost reduction initiatives. These efforts are in line with the strategy we outlined in June, and I remain confident in meeting our financial targets for fiscal year 2025.”

What FedEx Says It’s Doing To Stabilize Its Giant Ship:

  • “Reduction of flight frequencies and temporary parking of aircraft;

  • Volume-related reductions in labor hours and other line haul costs;

  • Consolidation of certain sorting activities to increase productivity;

  • Reduction of Sunday operations at some FedEx Ground locations;

  • Cancellation of certain planned network capacity and other projects;

  • Postponement of hiring of personnel;

  • Closure of more than 90 FedEx Office locations; and

  • Identification of five corporate office facilities to be closed, with additional real estate rationalization planning in the works.”

Brian Sozzi is a great editor and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and further LinkedIn.

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