FedEx shares fall after unexpected profits, worse economic outlook warns (video)

FedEx (FDX) shares fell nearly 15% Friday morning after reporting a much worse-than-expected quarterly earnings report a day earlier, underscoring investor concerns about emerging cracks in the U.S. economy.

FedEx, which is often seen as a barometer of the economy, reported profits of $892 million, about 24% less than analysts had expected, in the fiscal first quarter ended Aug. 31. The company also lowered its financial outlook for the coming fiscal year, forecasting earnings per share of $20 to $21 from a previous range of $20 to $22.

The quarterly results came a day after the Federal Reserve delivered a historic large cut in interest rates but said the U.S. economy remained strong. FedEx’s outlook conflicts with that reading.

“The magnitude of the Fed’s rate cuts yesterday speaks to the weakness of the current environment,” FedEx Chief Executive Officer Raj Subramaniam told analysts in a call Thursday afternoon.

Investors seemed to be leaning toward Subramaniam’s rate cut reading Friday morning, or at least their initial euphoria had faded. After hitting record highs the previous day, the S&P 500 (^GSPC) fell 0.43%. The Dow (^DJI) fell 0.38%, and the Nasdaq (^IXIC) fell 0.44%.

FedEx executives attributed the company’s weak performance to inflation-hit customers who stopped paying higher rates for priority mail. Subramaniam also blamed a “weaker industrial economy” for falling demand for business-to-business services, or shipping between businesses and manufacturers. FedEx is also ending its contract with the U.S. Postal Service. Subramaniam said the company expects to lose $500 million from the termination of the partnership.

Subramaniam said the company will continue its aggressive cost-cutting efforts, which are expected to save the company $4 billion in the next fiscal year.

Stephens analyst Daniel Imbro offered some hope for FedEx’s future in an interview with Yahoo Finance on Friday morning. “We recommend buying the stock at $250 because we think the risk-reward ratio is going to be quite attractive over the next 12 months,” Imbro said.

Oppenheimer analysts, however, say they are taking a wait-and-see approach to FedEx’s cost-cutting efforts.

“As we integrate our Express and Ground segments into one through our Network 2.0 initiative, we expect to see proven, sustained progress toward achieving business-wide margin levels above peak levels in what remains a challenging operating environment,” they wrote in a note to investors Friday morning.

Correction: A previous version of this article misspelled FedEx CEO Raj Subramaniam’s name. We apologize for the error.

Laura Bratton is a reporter for Yahoo Finance.

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