FedEx worried about trade, global economy
FedEx expects global trade disputes and an economic slowdown could severely hurt its business next year.
The company dramatically cut its profit outlook for the full fiscal year, which ends May 30, lowering it by 7% to 10%. It had just raised that forecast three months ago.
Although FedEx’s US business remains strong, it says its international business, especially in Europe, weakened significantly over the last three months.
“China’s economy has weakened due in part to trade disputes,” said CEO Fred Smith in a call with investors.
To control costs in a looming downturn, FedEx announced Tuesday evening that it will offer buyouts to its US employees and will scale back hiring plans. It is also considering a buyout offer for international staff.
The company’s new outlook sent shares of FedEx (FDX) down 7% in premarket trading Wednesday. FedEx’s stock was already down more than 25% this year ahead of the news.
FedEx is performing well at the moment. The company said it expects to have record shipments during the current holiday period. Revenue and profit for its fiscal second quarter, which ended November 30, both rose. But its profit margin was slightly narrower than a year ago.
The company did not say how many jobs it expects to eliminate, but the cut should be deep enough to cut costs by $225 million to $275 million per year. FedEx has more than 450,000 employees worldwide, about 25,000 more jobs than it had at the end of May.
“Of course, we expect overall FedEx employment to increase over the next several years, again, assuming moderate economic growth,” said Smith. But he said by offering buyouts now will help the company improve productivity.
Another key to improving productivity is greater use of advanced technology, including accounting bots, legal system analytics and predictive artificial intelligence, said Smith.