FedEx Sounds Alarm on US-China Trade War, Stock Plunges on Earnings Miss
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Shares for FedEx Corp. are plunging in Wednesday morning trading following the company’s second-quarter earnings miss and a warning that the trade war between the United States and China could impact its profits for the full year.
As of 10 a.m. ET, its stock was down nearly 13% to $151.21. The drop came after the courier delivery service giant’s first-quarter results, with adjusted earnings that came in at $3.05 per share — an 11.8% decline from the previous year period and well below consensus bets of $3.57 a share. Sales remained mostly flat at $17.05 billion, but Wall Street’s average estimate was $18.04 billion.
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For the full fiscal year, FedEx predicts adjusted earnings per share in the range of $11 to $13 — a downward adjustment from its previous forecasts. It also announced expectations of slowing international trade volumes — which will contract this year for the first time since 2009 — as the trade dispute between Presidents Donald Trump and Xi Jinping continues to adversely affect manufacturing in Europe and Asia as well as stifle global shipping demand. (According to the Memphis, Tenn.-based firm, international sources account for a third of its annual revenue.)
“The new forecast reflects our lower revenue outlook driven by increasing trade tensions and the corresponding weakening in global economic conditions,” EVP and CFO Alan Graf said in a conference call with investors. “With the increasing uncertainty of trade negotiations and government policies, forecasting customer demand and our corresponding earnings is exceedingly difficult. … A further ramping in any trade measures and/or adverse changes in international trade policies and relations would likely drive additional weakness in our business.”
Over the past year and a half, the Trump administration has initiated four tranches of tariffs on Chinese imports. The U.S. leader recently postponed levies on $250 billion worth of Chinese goods — representing the combined first three tranches — as a “measure of goodwill” during the celebration of the 70th anniversary of the founding of the People’s Republic of China. The 5% duty increase, originally scheduled to take effect on Oct. 1, will now be imposed on Oct. 15.
However, the fourth group of duties, which would impact $300 billion in Chinese imports — including footwear, apparel and other accessories — has been spread across two dates. On Sept. 1, Washington hit Beijing with a 15% levy on $112 billion worth of those goods. China retaliated by slapping American products with new duties that range from 5% to 10%. Tariffs on the remaining $188 billion will be implemented on Dec. 15.
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