Miami Beach, Florida, FedEx Express delivery truck parked, driver unloads truck box.
Jeff Greenberg | Universal Images Group | Getty Images
FedEx Amazon reported a sharp drop in quarterly profit and lowered its full-year revenue outlook on Thursday as its customers continued to shift from fast, expensive delivery options to cheaper, slower ones.
Shares of the Memphis-based delivery giant fell about 11% to $267.74 in after-hours trading, dragging down shares of rivals. United Parcel Service Down 2.5%.
The shift to less profitable parcels is weighing on profits at FedEx and UPS. While UPS blamed the influx of volume from China-linked e-commerce companies identified by Reuters as Temu and Shein, FedEx pointed to a drop in priority shipments between businesses.
Industrial demand was weaker than expected, Chief Executive Raj Subramaniam said. Shipments between manufacturers and other businesses in the sector are FedEx’s most profitable, and are often seen as a bellwether for the U.S. economy.
“The magnitude of the Fed rate cuts yesterday is indicative of the weakness in the current environment,” Subramaniam said, referring to the Fed’s decision to cut interest rates by half a percentage point on Wednesday.
Subramaniam is leading a complex restructuring at FedEx that includes cutting billions of dollars in overhead and consolidating separate ground and express delivery units.
FedEx said cost cuts failed to offset a decline caused by weaker demand for profitable priority services and one fewer operating day in the fourth quarter.
The company now expects low-single-digit revenue growth in fiscal 2025. It had previously forecast low-to-mid-single-digit growth.
FedEx also lowered its full-year adjusted operating income target to $20 to $21 per share, from its previous range of $20 to $22 per share.
Adjusted earnings fell to $3.60 per share, compared to $4.55 per share in the prior year.
FedEx is terminating its contract with the U.S. Postal Service, its largest customer, and expects to lose $500 million from the contract loss in the current fiscal year.
FedEx’s unprofitable air freight contract with the U.S. Postal Service, which generated about $1.75 billion in revenue for FedEx during the Postal Service’s most recent fiscal year, will end on Sept. 29. UPS has acquired the business.
Executives are also evaluating whether to spin off or sell the FedEx Freight business.
