FedEx Share Price Drops After Slashing Profit Forecast

Is Amazon Air a real threat?


FedEx share price (NYSE: FDX) fell by 8.7 percent on Wednesday, reaching $168.96. The stock price decline came after the company’s Q2 earnings outperformed expectations but the company lowered its outlook, citing “weakened” international business as the catalyst.

The drop that FedEx stock price encountered caused the Dow transports to fall by 71 points. 16/20 of Dow transports are trading higher, with the Dow Jones Industrial Average up by 151 points.

FedEx generated earnings per share of $4.03 in the quarter, which beat Wall Street estimates of $3.94. FedEx recorded revenues of $17.8 billion, which met analyst forecasts.

To improve margins its next quarter and beyond, FedEx said that it would be following a buyout program. These buyouts will cost FedEx around $450 million in Q4 (2019). To cut costs even further, FedEx also explained that it intends to cut its international network capacity at FedEx Express.

The selloffs that FedEx stock is experiencing can also be attributed to Wall Street concerns relating to competition from Amazon Air. During the FedEx post-earnings call with analysts, the company answered questions relating to Amazon Air and how FedEx Corp intends to combat against it.

FedEx Chief Executive Frederick Smith, had this to say, “I’m not really sure how to answer this question,” and hinted that FedEx doesn’t see Amazon Air as a current competitor. Most analysts do not believe that Amazon Air is in a current position to impact FedEx significantly. This means that competition from Amazon has little sway on analyst ratings on FedEx stock

A source of softness that FedEx did acknowledge came from global tariffs. “Global trade has slowed in recent months and leading indicators point to ongoing deceleration in global trade near term” said management. Due to economic instability in many of FedEx’s delivering countries, the company expects international revenues to dip. The underwhelming guidance that the company issued was the main factor behind Wednesday’s decline in FedEx stock price.

FedEx Stock Analysis

Our analyst gives FedEx stock a price target of $245.

Our analyst gives FedEx stock an “outperform” rating currently.

To summarize, the global trade outlook is less promising than this time last year. However, I believe the the weaker global performance can be offset with cost reductions. FedEx has a viable plan to reduce costs in Europe, which is promising for future gains.

Also read why Micron stock is one to watch.