FedEx Corp. (FDX, Financial) released its second-quarter results for fiscal 2020 on Dec. 17 after the market closed. The logistics giant’s earnings and revenue lagged Wall Street’s estimates due to declining global economic conditions as well as Amazon’s move to cut some of its ties with FedEx.
Earnings highlights
The courier company recorded second quarter adjusted earnings of $2.51 per share, down 38% year-over-year. Wall Street had anticipated earnings of $2.76 per share. Revenue for the same period came in at $17.32 billion, down roughly 3% year-over-year and below Wall Street’s expectation of $17.58 billion.
“Fiscal 2020 is a year of continued significant challenges and changes for FedEx, particularly in the quarter just ended due to the compressed shipping season,” Chairman and CEO Frederick W. Smith said. “We have significantly enhanced our e-commerce capabilities with strategic initiatives including year-round seven-day FedEx Ground delivery, enhanced large package capabilities and the insourcing of FedEx SmartPost packages.”
Tensions between Amazon and FedEx
As of Dec. 15, Amazon (AMZN, Financial) has prohibited third party vendors from using FedEx ground delivery services for Prime orders for a temporary period. The online retailer cited a decline in FedEx’s ground delivery performance during peak periods. Amazon’s decision to ban FedEx ground came after the latter terminated its two major shipping contracts with Amazon earlier this year.
A FedEx representative said Amazon’s move impacts only a small number of sellers but “limits the options for those small businesses on some of the highest-demand shipping days in history.” Despite cutting several ties with Amazon, the shipping giant remains optimistic about achieving a record-breaking volume this holiday season.
Amazon’s efforts to ensure faster package deliveries through establishing a strong degree of reliance on its own transportation network has increasingly reduced its reliance on FedEx. Amazon has bought cargo jets, vans and trucks and is slated to double its own package deliveries this holiday season in the U.S. compared to the previous year. FedEx, on the other hand, looks to recover lost ground by teaming up with Wal-Mart (WMT, Financial) and Target (TGT, Financial).
Outlook
For the fiscal year of 2020, FedEx has provided adjusted earnings per share guidance between $10.25 and $11.50, down from its previous forecasted range of $11 to $13 per share. The company's revised lower outlook reflected “lower-than-expected revenue at each of our transportation segments and higher-than-expected expenses driven by continued mix shift to residential delivery services.”
Disclosure: I do not hold any positions in the stocks mentioned.
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