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FedEx Takes Hit At Hands Of Amazon And Trade War

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FedEx Corp. was forced to cut its profit forecast for the year due to higher costs and lower revenue caused by its now-defunct partnership with Amazon.

The company expects per-share earnings to fall between 16 percent and 29 percent in the current fiscal year, compared to the mid-single-digit percentage decline that was issued in June. FedEx also lowered its revenue outlook. As a result, its shares fell 10 percent in after-hours trading.

The company also posted an 11 percent decline in fiscal first-quarter profit due to issues its Express unit is facing because of the U.S. trade war with China, while FedEx’s Ground unit is spending heavily on additional transportation costs and equipment rentals.

FedEx is trying to find ways to cut costs, such as retiring planes and grounding others after the holiday shopping season.

“The global macro economy continues to soften, and we are taking steps to reduce capacity,” FedEx chief executive Frederick Smith said on Tuesday’s earnings call, according to The Wall Street Journal.

There are also plans to deliver packages seven days a week throughout the entire year, as well as use its own network to deliver the packages it used to hand off to the U.S. Postal Service — both of which add to the company’s growing costs.

A definite factor in the company’s woes: FedEx recently ended its two shipping contracts with Amazon, which will result in about $900 million in lost annual revenue. Instead, FedEx has decided to partner up with the eCommerce giant’s rivals, including Walmart and Target. The company also recently signed with Dick’s Sporting Goods to deliver the retailer’s online orders.

In an effort to generate more revenue, FedEx also plans to raise rates an average of 4.9 percent on packages sent through its Express and Ground networks next year, as well as implement a 5.9 percent rate increase on Freight shipments.

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Source: on 2019-09-18 07:15:00

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