Miss FedEx is the worst Deutsche Bank analysts have seen in 20 years

(Bloomberg) — Wall Street analysts are tight-lipped when discussing FedEx Corp.’s forecast. for the current quarter — which was missed by a landslide — and the withdrawal of full-year guidance. It’s really bad.

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For researchers at Deutsche Bank AG, it was the worst report they had seen in two decades.

“FedEx announced last night the weakest set of results we’ve seen versus expectations in our ~20 years of analyzing companies,” analysts at the bank, including Amit Mehrotra, said in a note to clients.

The package delivery giant said in a statement Thursday night that it expects first-quarter earnings, excluding certain items, to be $3.44 per share, or roughly 33% below analysts’ average estimate of $5.10. In addition, FedEx withdrew its 2023 earnings forecast, saying macroeconomic trends have “deteriorated significantly” both internationally and in the U.S. and are likely to worsen further, fueling fears of a broad-based downturn in the profits.

At least four sell-side analysts covering the stock cut their recommendations Friday on FedEx, as the stock sank as much as 24% before ending the day down 21%. Robert W. Baird & Co. analyst Gareth Holland summed up the sentiments by calling it an “ugly quarter”. The gloomy outlook pushed shares of rival United Parcel Service Inc., e-commerce giant Amazon.com Inc. and the European delivery companies quite in the red.

“The FedEx warning came as a slap in the face. This is a solid sign that the economy is starting to slow down,” said Ipek Ozkardeskaya, senior analyst at Swissquote. “This is certainly the first in a series of warnings that we may see for the coming quarters.”

Some strategists were already cautious about the earnings outlook ahead of FedEx’s warning. Michael Hartnett of Bank of America Corp. said in a note on Friday that the earnings recession was likely to push U.S. stocks to new lows, while Deutsche Bank strategists said corporate earnings would fall, putting the S&P 500 at risk of a much deeper selloff.

FedEx is not the only company to warn that the macroeconomic backdrop is likely to affect the bottom line. The CFO of General Electric Co. said on Thursday that supply chain challenges weighed on its performance in the third quarter, while some of Wall Street’s biggest banks expected deep declines in investment banking fees for the current quarter, with investors still spooked by inflation. on interest rates and a possible recession.

In Europe, earnings warnings have already started to filter through. British conglomerate Associated British Foods Plc warned that profit next fiscal year would be lower as rising energy costs and a stronger dollar weighed on its Primark clothing business, while Swedish appliance maker Electrolux AB said revenue will decline “significantly” in the third quarter amid rapidly accelerating inflation and low consumer confidence.

Those ominous signs have already prompted analysts to temper expectations, with weekly earnings declines outpacing improvements in about four months in the U.S., according to a Citigroup Inc. index. But there may still be a long way to go to reset expectations — analysts’ estimates for U.S. corporate earnings are near record levels, despite an 18 percent drop for the benchmark S&P 500 this year.

To protect against the myriad headwinds companies face, some strategists suggest being selective about regional exposures heading into earnings season.

“FedEx’s earnings weakness is concentrated in Asia and Europe, where we’re really seeing the biggest economic challenges, while activity in the U.S. is relatively strong,” said Maria Weitmann, senior strategist at State Street Global Markets. “This is in line with our broader assessment of macro conditions at the moment. Indeed, the US is our favorite market.”

Strategists at Goldman Sachs Group Inc. agree, saying that American firms that do most of their business at home will fare better than those exposed to Europe, where a recession is all but guaranteed. In dollar terms, the Stoxx Europe 600 has lagged the S&P 500 this year, while Goldman’s basket of US firms with 100% domestic sales has outperformed one tracking those with high exposure to Europe.

(Updates closing price for FedEx stock.)

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