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As FedEx stock crashes after brutal profit warning, analyst points to a lurking Amazon

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FedEx has blown three tires before the peak holiday shipping season, and chatter on the Street is that mighty Amazon may have played a role.

“It makes sense to see Amazon to trade off with this but there could also be a competitive element going on here too,” JPMorgan’s Jack Atherton wrote in a note to clients. “Coincidentally, Amazon’s Seller conference has been ongoing for the last 2 days which focused heavily on new features for Buy with Prime as it further tries to break down Shopify’s moat. Amazon also launched free shipping software for sellers, and discounted shipping rates. Amazon has piled money into its logistics capability over the past few years, to the point it has excess capacity for its own needs and is hungry for more share which is being targeted through FBA (Fulfillment By Amazon) and could be weighing on FedEx. I’d be buying Amazon on weakness here.”

FedEx served up a brutal earnings pre-announcement after the close of trading on Thursday, sending shares crashing after-hours. The logistics giant’s ticker page was the most visited on the Yahoo Finance platform in the wake of the warning, underscoring the severity of the disappointment.

Rival UPS shares also fell around 7% in sympathy as investors read-through the company may issue a lackluster quarter (or pre-announcement) in October.

Here’s a rundown of the egg FedEx served up to investors — which runs very counter to the optimism pitched by the company’s executives at a closely watched investor day in June.

FedEx’s first fiscal quarter fell quite flat.

Non-GAAP earnings: $3.44

Wall Street estimates: $5.14

The current quarter looks to have started weak, too.

Non-GAAP earnings guidance: $2.75

Wall Street estimates: $5.48

It’s also worth noting…

The company withdrew its full fiscal year outlook.

Key aspects of the FedEx profit whiff:

Significant weakness in Asia and Europe.

Costs are too high given slowing economic growth globally.

Execs were just too optimistic.

A FedEx delivery truck is seen on August 07, 2019 in Fort Lauderdale, Florida, the day that FedEx announced that it would stop delivering ground shipments for the Amazon company. (Photo by Joe Raedle/Getty Images)

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

“Global volumes declined as macroeconomic trends significantly worsened later in the quarter, both internationally and in the U.S. We are swiftly addressing these headwinds, but given the speed at which conditions shifted, first quarter results are below our expectations. While this performance is disappointing, we are aggressively accelerating cost reduction efforts and evaluating additional measures to enhance productivity, reduce variable costs, and implement structural cost-reduction initiatives. These efforts are aligned with the strategy we outlined in June, and I remain confident in achieving our fiscal year 2025 financial targets.”

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

“Reduction in flight frequencies and temporarily parking aircraft;

Volume-related reductions in labor hours and other linehaul expenses;

Consolidation of certain sort operations to drive productivity;

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

Cancellation of certain planned network capacity and other projects;

Deferral of staff hiring;

Closure of over 90 FedEx Office locations; and

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

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

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