FedEx Corporation said in a statement that the company was hard hit by the slowdown in global growth, prompting the firm to lower its forecast, raise its rates and implement cost-cutting measures.
"The company's operating results for the three months ended August 31 were 'negatively impacted by a weakening global macro environment' driven by increasing trade tensions and policy uncertainty," FedEx Corporation chairman and CEO Frederick W. Smith said in a statement.
Effective January 6, 2020, FedEx Express, FedEx Ground and FedEx home delivery shipping rates will be increasing shipping rates by an average of 4.9%. while FedEx Freight shipping rates will also be up by an average of 5.9%.
The multinational courier delivery service noted that it is lowering its fiscal 2020 earnings forecast as the company’s revenue outlook has been reduced due to increased trade tensions and additional weakening of global economic conditions since the company’s initial fiscal 2020 forecast in June.
FedEx said that its operating results were also affected by the loss of business from a large customer, one less operating day, increased costs to expand service offerings and continued mix shift to lower-yielding services, which were partially offset by lower variable incentive compensation expenses, revenue growth at FedEx ground and higher yields at FedEx freight.
FedEx is now forecasting earnings of $10.00 to $12.00 per diluted share before the year-end. It also expects its effective tax rate (ETR) to be 24% to 26% before the year-end although the capital spending forecast remains $5.9 billion, it added.
“FedEx is implementing additional cost-reduction initiatives to mitigate the effects of macroeconomic uncertainty, including post-peak reductions to the global FedEx Express air network to better match capacity with demand,” said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer.
“However, we are continuing to make strategic investments to improve our capabilities and efficiency, which we expect will drive long-term increases in earnings, margins, cash flows, and returns.”
The forecasts, FedEx said, assumes a moderate US economic growth, the company’s current fuel price expectations, no further weakening in international economic conditions from the company’s current forecast and no additional adverse developments in international trade policies and relations.
Smith noted the company is positioning itself to "leverage future growth opportunities as [it] continues the integration of newly-bought, TNT Express, enhance FedEx Ground residential delivery capabilities and modernize the FedEx Express air fleet and hub operations".
In the fiscal first quarter, adjusted earnings dropped to $3.05 a share, FedEx said. Sales were little changed at $17 billion as operating income fell 8.8% to $977 million in the quarter. Operating margins also narrowed to 5.7% from 6.3%.