By Lisa Baertlein and Ananta Agarwal
(Reuters) – FedEx reported a significant decline in quarterly profit and revised its full-year revenue forecast downward on Thursday as customers continued to opt for less expensive, slower delivery alternatives over the company’s speedy, pricier services.
Shares of the Memphis-based delivery company dropped nearly 11% to $267.74 in after-hours trading, leading to a 2.5% decline in shares of its rival United Parcel Service (NYSE: UPS).
The transition to less profitable packages is impacting profits at both FedEx (NYSE: FDX) and UPS. While UPS attributed this decline to an influx of volume from China-linked e-commerce players identified by Reuters as Temu and Shein, FedEx cited a decrease in priority shipments between businesses as the primary cause.
FedEx CEO Raj Subramaniam indicated that industrial demand was weaker than anticipated. Shipments between manufacturers and other companies in the industrial segment remain the most profitable for FedEx, which is often viewed as an economic indicator for the U.S. economy.
Subramaniam referenced the Federal Reserve’s recent decision to cut interest rates by half a percentage point, stating, “The magnitude of the Fed rate cuts yesterday signals the weakness of the current environment.”
Subramaniam is currently overseeing a complex restructuring initiative at FedEx aimed at reducing overhead costs by billions of dollars and integrating its Ground and Express delivery units.
Despite efforts to reduce costs, weak demand for high-margin priority services and one fewer operating day in the latest quarter negatively impacted results, according to FedEx.
The company now projects revenue for fiscal 2025 to grow by a low single-digit percentage, compared to its previous expectation of low-to-mid single-digit percentage growth.
FedEx also lowered the upper end of its full-year adjusted operating income forecast to between $20 and $21 per share, down from the prior range of $20 to $22 per share.
On an adjusted basis, profit decreased to $3.60 per share from $4.55 per share in the same period last year.
FedEx is in the process of phasing out contract work for the United States Postal Service (USPS), its largest customer, and anticipates a $500 million revenue loss from the termination of this contract in the current fiscal year.
The USPS air contract, deemed unprofitable and accounting for about $1.75 billion in revenue during the postal service’s most recent fiscal year, will conclude on September 29, with UPS securing this business.
Executives are also evaluating the possibility of spinning off or selling FedEx Freight.
