After removing its earnings prediction due to deteriorating economic conditions, FedEx Corp. saw a $11 billion decline in market value, wiping away two years of stock gains.
The package delivery company retracted its previous outlook and released preliminary results for the most recent quarter that were much below Wall Street's expectations, which might be a warning indication for the global economy. It also noted weakness in Asia and difficulties in Europe.
As part of its immediate cost-cutting measures, the business would park some planes, reduce employee hours, and close more than 90 of its 2,200 FedEx Office sites.
Although the US economy has shown mixed results, with manufacturing and employment remaining stable, businesses across all industries are beginning to depict a more dire image of the economy.
While consumers adjust their spending, businesses like Walmart Inc. and Target Corp. have dialled back expectations.
The depressing remarks from FedEx are a setback for Raj Subramaniam, the company's new CEO, who had gained support from investors quickly after taking over in June by increasing the dividend, announcing a board reorganisation, and presenting a multi-year plan to increase profit.
Shares of freight transportation companies are in free fall after FedEx's FY1Q pre-announcement, which was significantly below forecasts. There is no doubt that the level of demand around the world is declining, but the majority of the challenges FedEx is experiencing are more company-specific.
Wall Street analysts downgraded numerous stocks and lowered their price targets in response to the news. Although Ground operations also fell short of expectations, Express business is the main cause of the poor performance, according to UBS AG analyst Thomas Wadewitz.