FedEx cuts 2020 profit forecast again as 7-day delivery costs weigh

FedEx Corp on Tuesday issued its second warning for fiscal 2020 profit as it spent heavily to launch Sunday delivery in time for the holidays, the continued tariff fight restrained global trade, and it grappled with fallout from its breakup with Amazon.com. FedEx shares dropped 6.5% to $152.60 in extended trade after it also said the late arrival of Thanksgiving shifted revenue from Cyber Monday into December, hurting results in its quarter ended Nov. 30.

"We incurred peak ramp-up costs in Q2, with none of the revenue benefit," Rajesh Subramaniam, FedEx president said on a conference call with analysts.

See Zee Business Live TV streaming below:

"Our hopes for a restoration and trade growth expressed last June have simply not materialized due to the trade dispute," said Fred Smith, FedEx`s founder and chief executive.

FedEx`s adjusted net income fell 38.9% to $660 million, or $2.51 per share, for the fiscal second quarter, missing analysts` average estimate for a profit of $2.76 a share, according to IBES data from Refinitiv.

Operating margin in the FedEx Ground segment tumbled to 6.4% from 11.5% a year ago, largely related to the cost of adding Sunday, or 7-day, delivery.

At Express, its plane-focused fast delivery service, operating margin fell to 2.6% from 6.6% a year ago, after weak industrial production contributed to softness in its higher-profit commercial business.

In September, FedEx lowered its earnings forecast for the year ending May 2020, to $11 to $13 per share. On Tuesday, it cut that to $10.25 to $11.50 per share, citing missed revenue targets in all transportation segments and higher residential delivery costs.

This holiday season is six days shorter than last year, pressuring package delivery firms at a time when retailers are demanding speedier deliveries.

Sriram Sridhar, CEO of LateShipment.com, tracks last-mile deliveries and said data culled from clients suggest that FedEx is lagging rival United Parcel Service Inc`s on-time performance in large cities like Los Angeles, Seattle, Boston and New York.

Up to 15% of FedEx ground packages are delayed in some of the worst-hit areas, said Sridhar, forecasting that by the end of the season FedEx could have 1%-2% more delays than UPS.

Amazon this week temporarily blocked certain third-party sellers from using the FedEx Ground delivery network to handle Prime shipments as the online retailer strives to hit accelerated delivery deadlines. FedEx this summer terminated its contracts with Amazon, which is building a competing logistics network.