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FedEx’s bad news might be just the beginning. The package delivery giant roiled markets with a profit warning Thursday evening that sent its shares plunging more than 20%, their biggest-ever daily drop.
The announcement “came as a slap” and was a “solid sign that the economy started slowing,” said Ipek Ozkardeskaya, a senior analyst at Swissquote, to Bloomberg.
It was also, she added, the “first in a series of warnings that we may see for the quarters to come.”
She wasn’t alone in her sense of foreboding. Carl Riccadonna, chief U.S. economist at BNP Paribas, told MarketWatch Friday, “You are going to see more businesses talking about the slowing economy, less pricing power.” Some companies might “defy the math,” he told the outlet, but ultimately macroeconomic trends drive microeconomic stories.
“Margin compression and the need to liquidate inventories” will result in firms needing to “mark down prices,” he added.
FedEx CEO Raj Subramaniam, for his part, did not hold back on the doom and gloom. Asked on CNBC if a “worldwide recession” was ahead, he answered, “I think so; these numbers don’t portend very well. We are seeing volume decline in every segment around the world. So we just assume at this point that economic conditions are not going to be good.”
His company’s poor results are “a reflection of everybody else’s businesses,” he added on a particularly ominous note.
He has a point: FedEx, with the wide range of items it ships worldwide, has long been considered a bellwether of global economic growth.
The company had been expected to announce its first-quarter earnings on Sept. 22, but opted for the earnings preannouncement, not surprising given how badly its actual results fell short of forecasts and expectations.
In its warning, FedEx said it expected business conditions to further weaken, adding it would withdraw guidance for the rest of its fiscal year. It blamed the poor performance on “global volume softness” that “accelerated” in the final weeks of the quarter.
“We are swiftly addressing these headwinds, but given the speed at which conditions shifted, first-quarter results are below our expectations,” Subramaniam said in a statement. “While this performance is disappointing, we are aggressively accelerating cost reduction efforts and evaluating additional measures to enhance productivity, reduce variable costs, and implement structural cost-reduction initiatives.”
The company also said it would defer hiring, reduce flight frequency, close 90 office locations, and reduce capital expenditures by $500 million over the coming year.
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