On Wednesday, FedEx (NYSE:FDX) experienced a significant setback, with its shares plummeting by 12% in response to lackluster financial results and a concerning outlook. This downturn prompted Wall Street analysts to slash price targets, contributing to a broader market selloff later in the day.
As a key indicator of global economic trade, FedEx’s performance is closely monitored by investors. Specific challenges within the global delivery giant, particularly in its Express delivery business, disappointed Wall Street. Despite an initial resilience in the overall market, the late-day selloff led to a decline in the S&P 500.
Danni Hewson, Head of Financial Analysis at AJ Bell, commented on the situation, stating, “The Fed’s tightening regime was always going to have a lagging factor, and we’ve seen plenty of companies tightening their belts over the past year to be leaner and meaner heading into any downturn.”
The air-based Express unit faced a substantial 60% decline in quarterly operating income, attributed to volatile macroeconomic conditions, muted retailer restocking, and reduced demand from its major customer, the U.S. Postal Service (USPS). The USPS has been redirecting more packages from higher-margin air services to ground services.
Analysts were surprised by the drop in Express earnings, as they had anticipated that cost-cutting initiatives announced earlier in the year would offset some of the decline in business from USPS. Deutsche Bank analyst Amit Malhotra commented, “FedEx’s quarterly results are a step back.”
FedEx stock experienced a loss of $33.75 per share, closing at $246.25, while rival UPS (UPS.N) saw a 2.9% decline in its shares. The broader S&P 500 index also lost 1.5% after a period of steady gains that brought it close to an all-time record.
In response to the challenges, FedEx CEO Raj Subramaniam highlighted weak industrial production globally, impacting both Express Freight and domestic Express figures. Despite some attributing the struggles to macroeconomic factors, analysts at Morgan Stanley pointed out that FedEx and UPS are still grappling with the “post-pandemic normalization of volume and pricing trends.”
The drop in FedEx’s stock on Wednesday was expected to wipe out approximately $8 billion from its market value, leading at least five brokerages to cut their price targets. BofA Global Research made the most substantial cut, reducing its target by $21 to $313.
FedEx is currently in negotiations to renew its post office contract to improve profitability from that segment of the business. Analysts, including TD Cowen’s Helane Becker, anticipate that FedEx might walk away from the USPS business next year when the contract expires. Shares of FedEx currently trade at about 14 times forward profit estimates, below rival UPS’s multiple of 16.7, according to LSEG data.
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Author Faith Yakubu 
