FedEx (NYSE: FDX) shares were down more than 21% as the company posted preliminary earnings which were significantly worse than expected due to weakness in global shipment volumes. It's a big change from the pandemic when FedEx's fortunes were soaring as shipment volume spiked.
FedEx's weakness has spillover effects for the broader market which continues to sell off following last week's worse-than-expected inflation data. Now adding to those challenges, there's increasing evidence that the global economy is slowing. Many market participants consider FedEx's results to be a leading indicator of the business cycle. Most notably, former Fed Chair Alan Greenspan held this opinion and weighted FedEx's performance heavily in his assessment of the economy.
The company also withdrew its guidance for the full year and announced more cost-cutting steps. FedEx will close 90 office locations and 5 corporate offices, delay hiring, reduce flights, and cancel projects. Overall, the company will reduce capital expenditures by $500 million.
In a statement, CEO Raj Subramanian said, "Global volumes declined as macroeconomic trends significantly worsened later in the quarter, both internationally and in the U.S. While this performance is disappointing, we are aggressively accelerating cost reduction efforts."
In its fiscal first quarter, FedEx reported $3.44 in earnings per share which fell short of expectations of $5.14 per share. Revenue also came in just under expectations at $23.2 billion vs $23.6 billion.
The deterioration in its business also led FedEx to pull its full-year forecast due to a lack of certainty around its performance and the macroeconomic environment. It specifically mentioned weakness in Europe and Asia as the biggest factors in its underperformance. And while these factors are leading to a decline in revenue, operating expenses have remained high.
Next quarter, FedEx sees adjusted earnings per share of $2.75 and revenue between $23.5 billion and $24 billion. This forecast fell short of Wall Street's consensus expectation of Q2 earnings per share of $5.48 and $24.9 billion in revenue.