FedEx profit beats estimates, warns of pain in 2020 from trade war

FedEx profit beats estimates, warns of pain in 2020 from trade war

FedEx Corp reported a 17.5per cent fall in quarterly profit on Tuesday, as an escalating U.S.-China trade war continued to weigh on the package delivery company.

FILE PHOTO: A Federal Express truck on delivery is pictured in downtown Los Angeles
FILE PHOTO: A Federal Express truck on delivery is pictured in downtown Los Angeles, California October 29, 2014. REUTERS/Mike Blake

REUTERS: Package delivery company FedEx Corp beat Wall Street estimates for quarterly profit on Tuesday, but warned that U.S.-China trade tensions and the non-renewal of its contract with Amazon.com Inc would hurt its fiscal 2020 performance.

Shares of the company recouped from initial losses and were last up 1.4per cent at US$157.76 in extended trading.

The United States and China have waged an 11-month trade war marked by tit-for-tat tariffs on hundreds of billions of dollars of each others’ goods, roiling financial markets, disrupting supply chains and crimping global economic growth prospects.

"Our fiscal 2020 performance is being negatively affected by continued weakness in global trade and industrial production, especially at FedEx Express," Chief Financial Officer Alan Graf said in a statement.

FedEx forecast a mid-single-digit percentage point decline in adjusted earnings for fiscal 2020.

"If we see these tariffs rise to say 25per cent as the Trump administration has talked about ... one of the biggest losers in the American economy would be FedEx," said Matthew White, a transportation and package delivery industry specialist.

"Trade weakness is very hard to predict, as it can be caused by both policy and sentiment. Unfortunately, FedEx is seeing negative effects of both."

The shipping giant, which gets about a third of its revenue from outside the United States, has drawn Chinese ire over shipping mistakes involving several packages. Most recently, a package containing a Huawei phone sent to the United States was returned last week to its sender in Britain, in what FedEx said was an "operational error."

Telecoms company Huawei Technologies Co Ltd in May was added to a blacklist of people and companies the U.S. government said posed a security risk, barring it from buying, without special approval, U.S. technology upon which it was heavily reliant.

FedEx on Monday sued the U.S. government, saying it should not be held liable if it inadvertently shipped products that violated the Trump administration ban.

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Earlier this month, FedEx decided not to renew its contract with Amazon, which represented less than 1.3per cent of its total revenue in the last calendar year, for U.S. cargo delivery through FedEx Express, the unit that delivers packages on planes.

FedEx described the decision as a strategic move that would allow it to focus on the broader e-commerce market, a group that would include rivals of Amazon scaling up one- and two-day delivery.

"The big emphasis going forward is going to be on e-commerce, which FedEx says will pressure yield," said Cathy Morrow Roberson, founder of consulting firm Logistics Trends & Insights. "They're right, especially for Express, and since they will be doing more residential deliveries, that will cost more as well."

FedEx also said the cost of integrating Dutch delivery company TNT Express into the company was now expected to be about US$1.7 billion through fiscal 2021. Fedex had said in March the cost would be more than US$1.5 billion. It bought TNT Express in 2016 for US$4.8 billion and has struggled to integrate it into its own network.

Adjusted net income fell to US$1.32 billion, or US$5.01 per share, for the fourth-quarter ended May 31, from US$1.60 billion, or US$5.91 per share, a year earlier.

Revenue rose to US$17.8 billion from US$17.3 billion a year earlier, largely due to growth in U.S. volume and higher revenue per shipment at FedEx Freight and FedEx Ground.

Analysts on average had expected earnings of US$4.85 per share and revenue of US$17.79 billion, according to IBES data from Refinitiv.

(Reporting by Sanjana Shivdas in Bengaluru and Melissa Fares in New York; Editing by Arun Koyyur and Peter Cooney)

Source: Reuters

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