FedEx Corp. fell in U.S. trading after projecting its first quarterly earnings decline since 2009 as slowing economic growth hurt demand for the express packages that provide most of its sales.
A slump in Europe and slowing growth in Asia may have exposed a weakness of FedEx’s express business, which was built around customers willing to pay more for speed of delivery, said analysts from Sanford C. Bernstein & Co. and Raymond James & Associates Inc.
“The economy needs to get better,” said Arthur Hatfield, an analyst with Raymond James in Memphis, Tennessee. “We see some pent-up demand but corporations aren’t spending the money until they get clarity on where policies are going.”
The shares slid 2.1 percent to $85.73 at 9:36 a.m. in New York following yesterday’s forecast, the second one since June that trailed analysts’ projections. Memphis-based FedEx operates the world’s biggest cargo airline and is considered an economic bellwether because it moves goods ranging from financial documents to pharmaceuticals.
Profit for the quarter that ended Aug. 31 will be $1.37 to $1.43 a share, FedEx said yesterday in a statement. That was less than a June 19 forecast of $1.45 to $1.60 a share and year- earlier earnings of $1.46. It would be the first drop in adjusted per-share profit since the quarter ended November 2009.
FedEx is set to release quarterly earnings on Sept. 18, with United Parcel Service Inc., the world’s largest package- delivery company, to follow about a month later. Atlanta-based UPS dropped 2.4 percent to $71.94.
Even with an economic rebound, shippers probably won’t return to paying a premium for overnight service, said Dave Vernon, an analyst based in New York with Sanford C. Bernstein.
“The way that FedEx’s business is set up, it’s really geared for speed,” Vernon said. “They need to restructure that and make it a little bit more economical on how they run their network. That’s going to be a relatively slow process.”
The International Monetary Fund in July said it expects the global economy to expand 3.9 percent, down from an April estimate of 4.1 percent. FedEx in June lowered its projection for U.S. economic growth to 2.2 percent for the year that ends May 31, from a 2.3 percent forecast given six months earlier.
Manufacturing in the U.S. contracted for a third month in August, the longest slide since the recession ended and a sign the expansion may lose a source of strength. The Tempe, Arizona- based Institute for Supply Management said yesterday its factory index fell last month to the lowest since July 2009.