FedEx Q2 results tempered by European slowdown
19 / 12 / 2018
FedEx saw second quarter revenues and profits improve in the midst of "another record setting holiday season" but its results were tempered by weakening conditions in Europe and China.
The express giant saw total revenues for the period ended November increase by 9.2% year on year to $17.8bn and net income improved 20.6% to $935m.
In a conference call after results were announced, FedEx chairman and chief executive Fred Smith said that improvements were fuelled by strong growth in the US, while its international business, Europe in particular, had “weakened significantly” since September. China’s economy has also weakened as a result of trade disputes, he added.
As a result of global macro-economic trends, the company has lowered its fiscal 2019 earnings guidance and is accelerating actions to reduce costs.
These actions include:
• A voluntary buyout (redundancy) programme for eligible employees
• International network capacity reductions at FedEx Express
• Limited hiring in staff functions
• Reductions in discretionary spending
The buyout programme is expected to cost $450m to $575m but save the company $225m to $275m in fiscal year 2020.
Executive vice president, chief marketing and communications officer Raj Subramaniam added: The peak for global economic growth now appears to be behind us.
“The Eurozone’s growth has slowed from 2.5% last year to under 2% in the second half of 2018, and economic growth in the UK has slowed sharply since July.
“The secular slowdown in Chinese economy has been exacerbated by trade tensions. Spill over effects from these tensions and the fading tech cycle have negatively impacted growth throughout Asia.
“Emerging Asia growth slowed from 6% in 2017 to 5.6% in the third quarter and world trade slowed to just 3.5% compared to 5.3% in the third quarter of 2017. Leading indicators point to positive but even slower trade growth near term.”
Smith was also again asked about the impact that Amazon Air could have on its business: “I’m not really sure how to answer this question. I mean, we look at Amazon as a wonderful company in service, and they are good customer of ours. We don’t see them as a peer competitor.
“At this point in time for many reasons, we think it is doubtful that [Amazon becoming a competitor] will be the case.”
He later said that the Amazon Air network was set up to move its own inventory and was therefore very different from the setup of FedEx and UPS.
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