In Miami Beach, Florida, a FedEx Express delivery van was observed with a driver unloading goods from a box dolly, as captured by Jeff Greenberg from Universal Images Group and Getty Images.
FedEx reported a significant decline in its quarterly profit and adjusted its full-year revenue forecast downward on Thursday. The adjustment comes as customers continue opting for slower, less expensive delivery services over quicker, more costly alternatives.
Following the announcement, shares of the Memphis-based delivery company dropped nearly 11% to $267.74 in after-hours trading, which also impacted the shares of rival United Parcel Service (UPS), causing a decline of 2.5%.
The shift towards less profitable package options has placed pressure on the profits of both FedEx and UPS. While UPS attributes this challenge to a surge in volume from China-linked e-commerce companies, identified by Reuters as Temu and Shein, FedEx has noted a reduction in priority shipments between businesses as a primary factor.
CEO Raj Subramaniam indicated that industrial demand was weaker than anticipated. Shipments between manufacturers and other companies in this segment are among the most profitable for FedEx, which is often considered an economic indicator for the U.S.
Subramaniam remarked, “The magnitude of the Fed rate cuts yesterday signals the weakness of the current environment,” referring to the Federal Reserve’s recent decision to cut interest rates by half a percentage point.
Subramaniam is currently overseeing a comprehensive restructuring at FedEx, which includes significant reductions in overhead costs and the merging of its Ground and Express delivery units.
Despite these cost-cutting measures, FedEx reported that they were insufficient to counteract the impact of weaker demand for high-margin priority services and one fewer operating day in the latest quarter.
The company now projects revenue growth for fiscal 2025 to be in the low single-digit percentage range, down from the previously forecasted low-to-mid single-digit percentage growth.
Additionally, FedEx has lowered the upper end of its full-year adjusted operating income forecast to between $20 and $21 per share, compared to the previous range of $20 to $22 per share.
On an adjusted basis, FedEx’s profit fell to $3.60 per share from $4.55 per share in the same period last year.
FedEx is also in the process of winding down its contract work for the United States Postal Service (USPS), its largest customer, anticipating a $500 million negative impact on revenue from the loss of this contract during the current fiscal year.
The USPS air contract, which generated approximately $1.75 billion in revenue for FedEx during the postal service’s latest fiscal year, will terminate on September 29, with UPS taking over the business.
FedEx executives are also considering the possibility of spinning off or selling its FedEx Freight business.
