New signal of US economic slowdown! FedEx Q1 earnings shock, stock price plunges more than 11% after hours

According to the Zhitong Finance and Economics APP, FedEx (FDX.US) has stated that its business will slow down in the next year and reported lower-than-expected quarterly profits, marking another warning signal for the direction of the U.S. economy.

Due to customers opting for cheaper shipping services, the parcel giant has been impacted by reduced priority services. CEO Raj Subramaniam described this as "a challenging quarter." The company stated in a statement on Thursday that extensive cost-cutting efforts have made progress but only partially mitigated these negative factors.

For the first fiscal quarter ending on August 31, the company's adjusted earnings per share were $3.60, significantly lower than analysts' expectations of $4.77 and the $4.37 from the same period last year. Revenue was $21.6 billion, slightly below analysts' expectations of $21.9 billion. This financial report is the first to be adopted by FedEx after integrating its express, ground, and freight operations on June 1.

After the U.S. stock market on Thursday, as of the time of writing, FedEx's stock price plummeted by over 11%. Competitor United Parcel Service (UPS.US) also fell by nearly 3% due to this impact.

Following the Federal Reserve's first rate cut since 2020 on Wednesday, this performance has alarmed investors seeking signals about the economic outlook. The Fed's policy shift reflects increasing concerns about the health of the labor market as employment growth slows and inflation cools. FedEx is considered an economic barometer as the company is involved in various industries across the global economy from retail to manufacturing.

In the most recent quarter, FedEx found that an increasing number of price-sensitive customers are opting for slower and cheaper delivery services, a trend that also impacted UPS earlier this year. Brie Carere, FedEx's Chief Marketing Officer, stated during the company's earnings conference call that due to soft business-to-business demand, the domestic shipping volume of the company's express division in the U.S. decreased by 3%.

Chief Financial Officer John Dietrich mentioned during the conference call that expectations for growth in U.S. high-end service revenue and profits were not met.

Bloomberg Intelligence analyst Lee Klaskow noted that "people don't have a sense of urgency" to pay extra for ultra-fast shipping "This usually happens when things are tough, when people are trying to save money."

FedEx currently expects adjusted full-year earnings per share for the fiscal year to be between $20 and $21, lower than the previous expectation of $22. The midpoint of the new range is roughly in line with the average analyst expectation of $20.53.

In addition, FedEx is gradually reducing its contract work with its largest customer, the United States Postal Service (USPS), and expects to lose $500 million in revenue this fiscal year due to the loss of this contract.

FedEx's unprofitable USPS air freight contract is set to expire on September 29, bringing in approximately $1.75 billion in revenue for FedEx in the previous fiscal year. Competitor United Parcel Service has taken over this business.

As part of a broader cost-cutting plan, the company is also consolidating its ground and express networks. Subramaniam stated that the company still expects to save $2.2 billion this fiscal year. Executives are also evaluating whether to divest or sell its FedEx Freight business.

Regarding stock buybacks, FedEx stated that it expects to repurchase $1.5 billion in shares in the 2025 fiscal year, bringing the total repurchase amount to $2.5 billion