The profit outlook for 2019 was reduce3d for the second time in three months by FedEx Corp on Tuesday which resulted in its shares dropping by more than 5 per cent and raising already rife concerns about the company losing out market share to rivals in the delivery industry such as United Parcel Service Inc and Deutsche Post DHL Group.
Another blow to FedEx was the profit warning and weak quarterly results. The company had last cut its forecast for 2019 citing factors such as a sharp slowdown in global trade because of multiple factors. .
Economists worldwide view the performance of the package delivery industry as an indicator for the future direction of the global economy.
“Slowing international macroeconomic conditions and weaker global trade growth trends continue,” FedEx Chief Financial Officer Alan Graf said in a statement on Tuesday.
The persistent weakness in its international Express business, which includes former Dutch delivery company TNT Express and the expenses associated with the launching of the six-days-per-week and throughout the year operations at FedEx Ground in the United States were cited to be the factors impacting the results by the executives of the company.
In 2016, the then struggling delivery company firm TNT Express was acquired by FedEx in a deal worth $4.8 billion but the company has found it difficult to integrate the acquired firm into the existing network of FedEx.
According to expectations of FedEx, the costs of integrating the two companies would be more than $1.5 billion. The company would be able to complete a project by the end of 2020 that would allow for flow of packages between the networks of FedEx Express and TNT Express, the company has said in a regulatory filing. That would be over four years since FedEx had spent a fortune to acquire the Dutch delivery company.
Moreover, FedEx had to spend more than $300 million to set right technology systems in TNT’s European business which was hit be a severe cyber attack in 2017. In addition, that incident had taken away a many of the time-sensitive customers away from the company and into the fold of its rivals in Europe.
“It’s cutthroat over there,” said Cathy Morrow Roberson, founder of consulting firm Logistics Trends & Insights. “FedEx Express has some serious problems.”
No noticeable signs of the slowdown in the horizon are seen by Germany’s Deutsche Post DHL, the company had opined earlier this month. It also added that even if there was a weakening of the global economy, it would remain resilient because of its broad geographic and operational base.
On the other hand, compared to FedEx, there is less international exposure for Atlanta-based UPS. In January, the company said that the impact of global economic softening had been buffered by the U.S. results.
According to IBES data from Refinitiv, FedEx reported a weaker than expected profits per share for the fiscal third quarter that included FedEx’s peak holiday shipping and gift return season at $3.03 per diluted share against profits of $797 million. Analysts had expected profits of $3.11 per share.
“It looks like UPS had a better holiday season,” said Morrow Roberson.
(Adapted from Reuters.com)