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FedEx warning puts stocks for worst day, raises slowdown fears

FedEx warning puts stocks for worst day, raises slowdown fears

By Medha Singh and Bansari Mayur Kamdar

(Reuters) – FedEx Corp shares followed their worst day on Friday after the delivery heavyweight pulled back its forecast, prompting fears of slowing global demand while increasing pressure on its new chief executive for a quick turnaround.

Preliminary results sent the stock down 24% to about $155.95, with the company preparing to divest about $12.5 billion from market capitalization.

The bleak outlook comes as investors worry that the US Federal Reserve’s rapid pace of interest rate hikes to tame spiraling inflation threatens to push the economy into recession.

“We suspect that the headwinds from the inflation-scarred US economy, the resource-constrained European economy, and the second-order effects from the lockdowns in China, are proving difficult to overcome,” said Heleny Baker, an analyst at Cowen.

The US carrier joins global logistics peers such as Hong Kong’s Cathay Pacific (OTC:) and French carrier CMA CGM in signaling that consumers are saving up on necessities like gas and food ahead of the holiday season as higher prices discourage casual shopping.

Competition United Parcel Service reduced (NYSE:) 4.0%, XPO Logistics (NYSE:) is down 6.9% and e-commerce giant Amazon.com (NASDAQ 🙂 is down 3.1%. The Dow Jones Transportation Average was down about 5%, while the broader index was down about 1%. [.N]

Across the Atlantic, Germany’s Deutsche Post (OTC:) fell 6.1%, in London royal mail (LON 🙂 fell 7.5% and Copenhagen-based DSV shed 6.4% after the news.

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Analysts have also blamed the company’s own woes and pitfalls over the past few years, adding to pressure on CEO Raj Subramaniam, who was appointed to the position in March, to do more to restore investor confidence.

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“We have noted high levels of investor skepticism directed at management’s ability to achieve its long-term goals. With such earnings lost, these doubts appear increasingly justified,” Credit Suisse analysts said.

They added that the findings raise “uncomfortable questions as to whether the organization is simply too complex and too impractical to be able to achieve satisfactory long-term financial results”.

FedEx (NYSE:) also faced the demands of active investors after intense competition and dampening growth in parcel volumes affected its profitability.

The Memphis-based company is also dealing with contractor turmoil after it miscalculated the size of the holiday season last year. One of its largest contractors, a Tennessee businessman, lobbied FedEx last month to increase compensation. FedEx later cut ties and sued him.

FedEx on Friday declined to comment after the press release on its preliminary results.

Subramaniam warned on CNBC Thursday that he believes a global downturn is imminent.

Asked if the economy is “going into a global recession,” Subramaniam said, “I think so. But you know, these numbers, they don’t bode well.”

The stock’s Friday drop, should losses continue, would outpace the previous largest one-day percentage drop of 16.4% on Black Monday in 1987.

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