As FedEx shares tumble after brutal profit warning, analyst points to Amazon lurking

FedEx had three flat tires ahead of the peak holiday shipping seasonand talk on the street is that the mighty Amazon may have played a role.

“It makes sense to see Amazon compromise on this, but there may be a competitive element here as well,” JPMorgan’s Jack Atherton wrote in a note to clients. “Coincidentally, Amazon’s seller conference has been going on for the past 2 days, which has been focusing heavily on new features for Buy with Prime as it further tries to crack Shopify’s moat. Amazon also released free shipping software for sellers and discounted shipping rates. Amazon has amassed cash in its logistics capacity over the past few years, to the point that it has excess capacity for its own needs and is hungry for more share, which is channeled through FBA (Fulfillment By Amazon) and can weigh on FedEx. are buying Amazon because of weakness here.”

FedEx serves a gross profits pre-announcement after the close of trading on Thursday, which sent shares tumbling after hours. The logistics giant’s ticker page was most visited on the Yahoo Finance platform as a result of the warning, highlighting the severity of the disappointment.

Shares of rival UPS also fell about 7% in sympathy as investors read the company may issue a weak quarter (or advance announcement) in October.

Here’s a rundown of the egg that FedEx is offering investors – which is at odds with the optimism expressed by the company’s management at a closely watched investor day in June.

FedEx’s first fiscal quarter fell pretty flat.

The current quarter also seems to have gotten off to a weak start.

Also worth noting…

Key aspects of FedEx’s earnings sentiment:

  • Significant weakness in Asia and Europe.

  • The costs are too high given the slowing global economic growth.

  • Executives were too optimistic.

A FedEx delivery truck is seen on August 7, 2019 in Fort Lauderdale, Florida, the day FedEx announced it would stop delivering ground shipments for Amazon.  (Photo by Joe Raedle/Getty Images)

A FedEx delivery truck is seen on August 7, 2019 in Fort Lauderdale, Florida, the day FedEx announced it would stop delivering ground shipments for Amazon. (Photo by Joe Raedle/Getty Images)

Here’s what FedEx’s new CEO Raj Subramaniam had to say:

“Global volumes declined as macroeconomic trends worsened significantly later in the quarter, both internationally and in the US. We are quickly dealing with these headwinds, but given the speed with which conditions have changed, the first quarter results are below our expectations. While this performance is disappointing, we are aggressively accelerating cost reduction efforts and evaluating additional measures to increase productivity, reduce variable costs and implement structural cost reduction initiatives. These efforts are consistent with the strategy we outlined in June, and I remain confident in achieving our fiscal 2025 financial goals.”

What FedEx says it’s doing to stabilize its giant ship:

  • “Reduction in flight frequency and temporary parking of aircraft;

  • Volume-related reductions in working hours and other costs for liner services;

  • Consolidation of certain variety operations to increase productivity;

  • Reduction of Sunday operations at a number of FedEx Ground locations;

  • Cancellation of certain planned network capacities and other projects;

  • Postponement of recruitment;

  • Closing more than 90 FedEx offices; and

  • Identification of five corporate office facilities to be closed, with additional real estate rationalization planning underway.”

Brian Sozzi is editor-in-chief and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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