Sept 19 (Askume) – FedEx Corp (FDX.N) on Thursday reported a sharp drop in quarterly profit and cut its full-year revenue forecast as its customers turn to cheaper, slower options instead of faster, more expensive delivery methods.
Shares of the Memphis-based delivery giant fell nearly 11% to $267.74 in after-hours trading, more than a 2.5% decline in rival United Parcel Service Inc (UPS.N) .
The shift to less profitable packages is hurting profits at FedEx and United Parcel Service. While UPS attributed the surge to shipments from China-linked e-commerce companies , which Askume called Temu (PDD.O) and Shein, FedEx saw a drop in business priority shipments.
Chief Executive Officer Raj Subramaniam said industrial demand was weaker than expected. For FedEx, shipping between manufacturers and other companies in the region is the most profitable and is often seen as an indicator of the U.S. economy.
“Yesterday’s rate cut by the Fed signals weakness in the current environment,” Subramanian said, referring to the Fed’s decision to cut interest rates by half a percentage point on Wednesday.
Subramaniam is leading a complex restructuring of FedEx that includes cutting billions of dollars in overhead and merging its separate ground and express units.
FedEx said cost cuts failed to offset weak demand for its lucrative priority services and fewer operating days in the last quarter.
The company currently expects fiscal 2025 revenue to grow by a low-single-digit percentage. Previously, the company had said growth would be in the low to mid-single digits.
FedEx also cut its full-year adjusted operating profit to $20 to $22 per share from $20 to $21 per share.
Adjusted earnings per share fell to $3.60 from $4.55 a year earlier.
FedEx is ending contract work with its largest customer, the United States Postal Service, and it expects to lose $500 million in lost contracts this fiscal year.
FedEx’s unprofitable USPS Airways contract, which provided FedEx with about $1.75 billion in revenue during the Postal Service’s latest fiscal year, is set to expire Sept. 29. UPS took over the business.
Executives are also considering whether to sell FedEx’s freight business.
