FedEx Stock Plunges, Latest Amazon Victim

Sep 18
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FedEx (NYSE:FDX) is now the latest victim of Amazon’s (NASDAQ:AMZN) effort to expand into shipping and delivery services. Four Wall Street firms have quickly issued a downgrade for the stock including BMO (NYSE:BMO), Deutsche Bank (ETR:DBK), KeyBanc (NYSE:KEY), and Stifel (NYSE:SF) after the firm reported earnings that missed estimates and cuts to its full-year earnings forecast.  CNBC reports, “Management blamed the loss of Amazon business, trade issues, and foreign business related to TNT Express integration.” The company share price has dropped sharply today and is down approximately 13.75% in late-day trading. 

The general consensus from Analysts appears to be that FedEx management was not taking responsibility for the recent performance of the company and that global conditions were causing additional pressure for the firm after the decision to end its contract with Amazon reported earlier in the year and its huge loss of nearly $2 billion in Q4 of 2018.  FedEx CEO Fred Smith during Tuesday's earnings call stated: “…challenges increased somewhat due to the decision to not renew our largest Amazon contract and deepening trade disputes.” Alan Graf EVP & CFO stated later that, “The loss of volume from Amazon had a negative impact to the quarter.”

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BMO offered the analysis that in the longer term FedEx should see meaningful gains, the short to medium-term outlook will require significant cap-ex (capital expenditures) for investments in its air hubs and air fleet modernizations.  It should also start to see growth from the integration of TNT especially in Europe but that this would not occur in the short term. Deutsche Bank was much harsher in regard to the management’s failures to execute a clear strategy and instead blame results on ‘trade tensions and policy uncertainty’.  KeyBanc lowered guidance from ‘overweight’ to ‘sector weight’ with concerns over ‘ground margins and near-term investments’ and will look for “intermediate-term margin and earnings improvement...”

Amazon is a major disruptor in a variety of business sectors and I’m sure it is no surprise to most that whenever the company looks to move into a new sector that it puts significant pressure on current leaders. By moving into shipping as previously reported here and here the company is going to continue to put pressure on current shipping leaders.  FedEx CEO Fred Smith stated during Tuesday’s earnings call, “…the last thing I'm going to say is, we basically compete in an ecosphere that's got five entities in it. There's UPS, there's DHL, there's a US Postal Service, and now increasingly, there is Amazon. That's who we wake up every day, trying to think about how we compete against and give the best services to our sales force.”  As Amazon continues to expand its shipping capabilities I’m sure that Fred will be spending a lot more time in the future thinking about how his company will compete. 

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