The bad news from FedEx might just be the start. The parcel delivery giant rocked markets with a profit warning on Thursday night that sent its shares tumbling more than 20%, their biggest daily decline on record.
The announcement “was a slap in the face” and was “a solid sign that the economy has started to slow down,” Ipek Ozkardeskaya, senior analyst at Swissquote, told Bloomberg.
It was also, she added, the “first of a series of warnings that we may see for the coming quarters”.
She was not alone in her sense of foreboding. Carl Riccadonna, chief U.S. economist at BNP Paribas, told MarketWatch on Friday, “You’re going to see more companies talking about the slowing economy, less pricing power.” Some companies might “challenge the math,” he told the outlet, but at the end of the day, macro trends fuel micro stories.
“Margin squeeze and the need to liquidate inventory” will force companies to “cut prices,” he added.
FedEx CEO Raj Subramaniam, for his part, did not hold back the pessimism. Asked on CNBC if a “global recession” was coming, he replied: “I think so; these figures do not bode well. We are seeing lower volumes in all segments of the world. So we’re just assuming at this point that economic conditions won’t be good.
His company’s poor results are “a reflection of everyone’s businesses”, he added on a particularly ominous note.
He’s right: FedEx, with the wide range of items it ships around the world, has long been considered an indicator of global economic growth.
The company was due to announce its first quarter results on September 22, but opted for the early announcement of the results, which is unsurprising given how far its actual results were below forecasts and expectations.
In its warning, FedEx said it expected business conditions to weaken further, adding it would withdraw its guidance for the remainder of its fiscal year. He blamed the poor performance on “soft global volumes” which “accelerated” in the final weeks of the quarter.
“We are tackling these headwinds quickly, but given the speed at which conditions have changed, first-quarter results are below our expectations,” Subramaniam said in a statement. “While this performance is disappointing, we are aggressively accelerating cost reduction efforts and evaluating additional measures to improve productivity, reduce variable costs and implement structural cost reduction initiatives.”
The company also said it would postpone hiring, reduce flight frequency, close 90 offices and cut capital expenditures by $500 million over the coming year.
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