Daily Management Review

FedEx Cuts 2019 Profit Forecast Sending Its Shares Down


FedEx Cuts 2019 Profit Forecast Sending Its Shares Down
The global delivery package company FedEx Corp announced a steeper-than-expected reduction in its profit forecast warning for 2019 which apparently jolted investors resulting in the company losing out nearly 8 per cent of its share value. The reason for the negative forecast, according to the company, was because of slacking demand in freight transfers because of a slowing global economy. 
The performance of FedEx and other similar large global package delivery firms is considered by economists and investors alike to be a bell weather for the global trade. While presenting the warning, the company raised caution about a number of macro-economic issues which includes a possible slowdown of the UK because of an uncertain Brexit, a the recent contraction in the gross domestic product of Germany, the ongoing protests in France and slowing of demand in China because of the trade war of the country with the United States.
After FedEx commented about the slowdown in European business, there was a drop of shares in Deutsche Post, the owner of DHL Express, as well as in those of Royal Mail Plc. there was a drop of 4 per cent in early trading in the shares of United Parcel Service Inc's shares.
Compared to an earlier announcement of its fiscal 2019 adjusted earnings forecast in the range of $17.20 to $17.80 per share, FedEx on Tuesday reduced its forecast to a range of $15.50 to $16.60 per share.
At least four brokerage firms on Wall Street were prompted to cut their price targets by a minimum of $25 for the company because they were taken completely by surprise by the magnitude of the forecast by FedEx.
"We recognize that global growth has slowed but we are very surprised by the magnitude of the headwind, which is what might be seen in a severe recession," Morgan Stanley analyst Ravi Shanker wrote in a note.
The comments of FedEx on an economic slowdown reaffirms the assumption of peaking of global growth, said Credit Suisse analyst Allison Landry, who cut her price target by $27 to $263 for the company.
"If we operate under the assumption that global growth is headed for a slowdown ... we think there is reason to believe that the stock could be close to washed out," she said.
FedEx’s stock was rated as “buy” of higher by 24 of the 30 analysts covering the stock while only five rated them as "hold" and one rating them to be a "sell".
The comments by FedEx have also raised concerns among some analysts that the weakness in the global market would ultimately affect the United States economy because it was the only positive market for the company.
"Geopolitical issues are weighing heavily on the company's operations, and are masking what is turning out to be another solid peak shipping season," Cowen analyst Helane Becker said.
There has been a drop of about 26 per cent this year in the share price of FedEx while a 18 per cent drop was noted in the stocks of UPS in the same period. .
"With earnings now reset lower and given elevated macro uncertainty, a serious recovery in (FedEx's) share price appears unlikely in the short term," BMO Capital Markets analyst Fadi Chamoun said.