Why FedEx’s Earnings Warning Is So Bad News For The US Economy

Why FedEx’s Earnings Warning Is So Bad News For The US Economy

FedEx Corp. has bad news for investors, but what the logistics company’s huge profit warning says about the US economy may be even worse.

“The FedEx news was pretty grim. But when I read it, I wasn’t surprised,” Carl Riccadonna, chief US economist at BNP Paribas, told MarketWatch on Friday. He said it fits with his view that a “massive slowdown” is underway for the US economy.

FedEx FDX,
-21.40%
and other logistics and delivery companies are “a big factor in the economy,” Riccadonna said. “They tell you about leading economic conditions.”

FedEx cut its earnings forecast late Thursday, revised its outlook for the year and called for a deficit of half a billion dollars.

Also see: US stocks plunge as FedEx warning rattles investors, on track for big weekly losses

The global logistics and shipping company represents “the pulse of global goods business,” said Jack Ablin, chief investment officer at Cresset Capital.

“Global shipping activity is on a downward trend. Weekly freight demand, after peaking in February last year, has been in free fall,” Ablin said. Companies that “ordered double and triple during supply chain shortages are now facing oversupply.”

The FedEx warning offered little detail, briefly attributing the shortcomings to delays in Asia and Europe.

Wall Street was quick to point out that other parts of FedEx’s business, including the express service, were also limping.

FedEx shares ended 21% lower Friday, the lowest close since July 14, 2020, and also the worst one-day percentage drop on record, according to data dating back to April 1978. The stock was the worst performer on the S&P 500 index. spx,
-0.72%

Several other major US companies have warned or posted quarterly profits well below Wall Street’s expectations, including Target Corp. TGT,
-0.56%
and Walmart Inc. wmt,
-0.21%.

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Retailers are also struggling to adapt to excess inventory that has been thrown out of shape by the pandemic and supply chain problems, and as inflation has pushed some consumers to delay purchases or look for cheaper alternatives to products that are they usually buy.

It may be too early to say whether other companies will sound similar profit warnings or report lower profits, potentially causing markets to rumble even further in the coming weeks and months. Analysts “have been slow to lower their earnings estimates” for corporate earnings, Cresset Capital’s Ablin said.

Some companies may “defy the math,” but ultimately macroeconomic trends make microeconomic narratives, said BNP Paribas’ Riccadonna.

“[I] think you’ll see more companies talking about the slowing economy, less pricing power,” Riccadonna said. And in turn, “margin compression and the need to liquidate inventories” means companies need to “cut prices.”

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