Michelle ThompsonFedEx reported a challenging quarter due to a weakened industrial economy, prompting the company to lower its outlook for the year, which may indicate a broader economic slowdown.
The company, often regarded by investors as a barometer for both the US and global economies, expressed significant concerns about its industrial clients—those that ship to other businesses—rather than consumers, who are crucial to the US economy. CEO Rajesh Subramaniam noted that while e-commerce shipments are beginning to grow again, the industrial segment is concerning. Following the earnings report, FedEx shares dropped 14%.
Subramaniam explained that the sluggish industrial economy is impacting business-to-business shipping volumes, which are typically the most profitable. This has resulted in a shift from priority shipping services to more cost-effective deferred options. CFO John Dietrich remarked on the substantial changes in shipping preferences, despite overall volume remaining relatively strong.
The disappointing earnings came right after the Federal Reserve’s larger-than-expected interest rate cut of half a percentage point, intended to stimulate economic activity. Subramaniam highlighted this cut as indicative of current economic weaknesses and stated that he does not anticipate significant improvement in industrial conditions for the remainder of the year.
Federal Reserve Chair Jerome Powell emphasized the health of the labor market and the economy, asserting that the Fed’s actions aim to sustain this stability. Subramaniam expressed cautious optimism for a modest recovery in industrial production by early 2025 but acknowledged low growth expectations given the current economic climate.
Additionally, FedEx is facing rising costs, particularly in wages. Before the recent decline, its shares had increased by 21% for the year.
