The bad news from FedEx could be just the beginning. The parcel delivery giant roiled markets on Thursday night with a profit warning that sent its shares down more than 20%, their biggest one-day loss ever.
The announcement “came like a bang” and was a “solid sign that the economy is slowing down,” Ipek Ozkardeskaya, a senior analyst at Swissquote, told Bloomberg.
She added it was also the “first in a series of warnings we may see for the coming quarters.”
She wasn’t alone in her premonition. Carl Riccadonna, U.S. chief economist at BNP Paribas, told MarketWatch on Friday, “You’ll see more companies talking about the slowing economy, less pricing power.” Some companies might “defy the math,” he told the outlet, but ultimately macroeconomic trends drive microeconomic stories.
“Margin compression and the need to liquidate inventories” will mean companies “have to cut prices,” he added.
For his part, FedEx CEO Raj Subramaniam didn’t hold back on the doom and gloom. Asked on CNBC if a “worldwide recession” was imminent, he replied: “I think so; Those numbers don’t suggest it very well. We’re seeing volume declines in all segments around the world. So at this point we’re just assuming economic conditions aren’t going to be good.”
His company’s poor results are “a reflection of everyone else’s business,” he added in a particularly ominous note.
He’s right: FedEx has long been recognized as a driver of global economic growth, with the wide range of items it ships worldwide.
The company was due to report its first-quarter results on September 22, but opted for earnings pre-announcement, which is not surprising as actual results fell short of forecasts and expectations.
In its warning, FedEx said it expects business conditions to weaken further, adding that it would withdraw guidance for the remainder of its fiscal year. The poor performance was attributed to “global volume weakness” which “accelerated” in the final weeks of the quarter.
“We are addressing these headwinds quickly, but given the speed at which conditions have changed, the first quarter results are below our expectations,” Subramaniam said in a statement. “While this performance is disappointing, we are aggressively accelerating cost reduction efforts and are evaluating additional measures to increase productivity, reduce variable costs and implement structural cost reduction initiatives.”
The company also said it will postpone hiring, reduce flight frequencies, close 90 office locations and reduce capital spending by $500 million in the coming year.
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