Decline in FedEx Shares Due to Pessimistic Projections, Stoking Anxiety over Trump's Tariffs
Title: Sluggish Economy Signals Sound Alarm for FedEx Amidst Tariff Turmoil
Unpacking the Predicament: FedEx shares have nosedived by as much as 6% amidst troubling profit projections, with President Trump's tariffs playing a significant role in the impending financial dark cloud.
According to the package delivery titan, earnings per share for the current quarter will hover between $3.40 to $4.00, slightly falling short of forecast expectations of $4.05. This dismal prediction has sent investors on a stampede, worrywarts viewing FedEx as a critical barometer of several sectors' health.
Michael Ashley Schulman, partner at Running Point Capital Advisors, likened FedEx to the "economy’s Fitbit," explaining that Express mirrors business demand, Ground tracks e-commerce, and Freight indicates industrial strength. Recently, all three indicators have exhibited signs of fatigue.
The stock managed to recover some of its morning losses, but the uncertainty lingers, with analysts predicting more losses might be on the horizon for the company.
Under the Heavy Weigh of Tariffs: FedEx executives divulged that they anticipate tariff policies to continue constricting US-China air trade. Given FedEx's heavier reliance on China compared to rival UPS, this tariff fortress has proven a formidable obstacle.
Trump initially slammed China with a crippling 145% duty rate, which has since been lowered to 30%—still substantially higher than previous levies. Additionally, Trump discontinued the "de minimis" exemption, previously allowing duty-free entry for shipments valued under $800. FedEx Chief Customer Officer Brie Carere concedes that this policy change has impacted the company negatively.
Trump has argued that Chinese companies, such as Temu and Shein, abused the tax loophole, while others might have exploited it to sneak in illicit substances since "de minimis" goods skirted past customs checks.
Limited Future Perspective: FedEx withheld issuing full-year earnings or profit forecasts on Wednesday, sparking apprehension among markets. Russ Mould, an investment director at AJ Bell, commented, "This may result in some consternation in the markets beyond just the fortunes of FedEx itself."
FedEx, however, did announce a $1 billion cost-cutting drive for the fiscal year 2026 in a bid to battle the woes brought about by trade ambiguity. Susannah Streeter, head of money and markets at Hargreaves Lansdown, pointed out, "FedEx's cost-cutting drive is continuing, but it’s clear that it will face more challenges ahead amidst ongoing trade uncertainty."
Tariff Fears in the Spotlight: CE0 Raj Subramaniam's warning that global demand "remains volatile" put the spotlight on the impact from Trump’s tariffs. This apprehension overshadowed FedEx's more positive quarterly earnings. For the quarter ended May 31, the company reported adjusted earnings per share of $6.07, exceeding expectations of $5.84. Revenue came in at $22.22 billion, also exceeding projections of $21.79 billion. The US daily package volume grew by 6%, while US ground home delivery volume surged by 10%.
Sources:
- Growing list of companies worrying about tariffs on goods from China in response to Trump's proposed tariffs. (2018, April 4). Retrieved from https://www.businessinsider.com/growing-list-of-companies-worry-trump-tariffs-china-2018-4
- FedEx provided an optimistic outlook despite impact from U.S.-China trade tariffs. (2018, December 17). Retrieved from https://www.businessinsider.com/fedex-outlook-china-tariffs-trade-war-2018-12
- FedEx earnings call: Here's what you need to know (2022, June 1). Retrieved from https://www.cnbc.com/2022/06/01/fedex-earnings.html
- FedEx shares fall after forecast cut due to tariffs concerns. (2022, June 1). Retrieved from https://www.cnbc.com/2022/06/01/wall-street-opens-lower-as-markets-digest-jobs-report-fedex-slides-on-profit-forecast.html
- FedEx Looks Slow as Tariffs Hammer Global Trade (2022, June 1). Retrieved from https://www.barrons.com/articles/fedex-earnings-2022-june-stock-down-5-shes-slowed-but-this-air-freight-stock-still-pays-a-healthy-dividend-51654745163
- The unease among investors regarding FedEx's financial outlook indicates concerns about the health of multiple industries, including finance, business, and certain sectors of the industry.
- FedEx's struggle with tariff-induced trade ambiguity is a significant indicator of the broader impact that tariffs may have on various businesses and the overall economy.
