Last week the market got a jolt from an earnings guidance report that wasn’t supposed to happen.
In the spirit of “let’s just rip the damn band aid off,” FedEx issued a pre-announcement last Thursday nearly a week ahead of its regularly scheduled earnings call.
It was an ugly — and I mean ugly — report.
What’d they say?
Overall the company expects revenue of $23.2 billion and earnings of $3.33 per share. Wall Street had been expecting first-quarter revenue of $23.6 billion and earnings of $5.14 per share…
Not only that, they were withdrawing their FY 2023 earnings forecast — the guidance they had just released in June — “as a result of the preliminary 1Q financial performance and expectations for a continued volatile operating environment.”
And that wasn’t all…
Mr. Subramaniam (FedEx’s new CEO) said he expects the global economy to enter a recession.
Then what happened?
Shares of FedEx tanked 20%.
FedEx (FDX)
Fixing FedEx
As a company dealing with lousy business conditions, their new CEO rolled out a series of changes they were making to adapt to the changing conditions including: implementing a hiring freeze, closing multiple FedEx Office locations, cutting back on Sunday operations, closing five corporate office locations, and parking some cargo aircraft to name a few.
(No word on whether they’d be letting anyone go… a sure sign recession is upon us!)
What’s remarkable is how the company went from issuing 12 months of guidance in June to canceling it a mere three months later. In fact it’s downright troubling. It’s highly unlikely that business conditions deteriorated that fast.
More likely there were unaddressed issues that had been festering under the surface. So the quick about-face at FedEx is troubling. But what’s potentially more troubling is…
The FedEx Indicator
Truthfully, no single company can be seen as representing the entire global economy. But FedEx comes close. They are a company with global reach whose revenue to a large degree depends on the strength of businesses around the world.
If people are buying, merchants are shipping and FedEx is moving packages.
Now there could be a number of reasons their earnings have been hit so hard — like too much fat in the company itself, or just bad management. There’s also the possibility that in the post-pandemic world people’s spending patterns have shifted. Maybe more people are buying in person and less online. Or perhaps spending has shifted towards more experiential things like travel.
But don’t discount this message entirely. As a global shipper, FedEx has its finger on the pulse of the global economy — and it’s possible that right now, they can’t feel one…
Make the trend your friend,
Bob Byrne
Editor, Streetlight Daily