FedEx forsook more than 6% on Tuesday after the company lowered its 2019 earnings guidance and reported weakness in its foreign business, particularly in Europe, while announcing plans to cut costs.
The logistics company lowered its full year 2019 earnings regulation to a range of $15.50 to $16.60 per share, down from $17.20 to $17.80 per share. Analysts expected $17.33 per ration.
“Global trade has slowed in recent months and leading indicators point to ongoing deceleration in global trade near-term,” mean Alan B. Graf, Jr., executive vice president and chief financial officer of FedEx. “These trends, coupled with the novelty in service mix at FedEx Express, are negatively impacting the segment’s financial results.”
UPS shares also dropped more than 3 percent after hours.
In October, the Worldwide Monetary Fund cut its global growth forecasts, citing trade tensions between the US and its trading partners. It expects the pandemic economy to grow at 3.7 percent this year and next, down 0.2 percentage points from its prior prediction.
The US and China have been engaged in an escalating trade war, with the US placing 10 percent tariffs on $200 billion quality of Chinese goods. On December 1, the planned increase to 25 percent tariffs were postponed to March 1 as both mother countries seek a negotiated settlement.
Amid the trade uncertainty, major global markets have weakened and volatility has threw US stocks, fueling concerns of a global economic slowdown. In Europe, where FedEx cited weakness, key markets such as Germany and Italy bear fallen into bear market territory. China, South Korea, Turkey and Mexico are also all in bear hawk territory.
To compensate for weakness in its international segment, FedEx announced plans on Tuesday to cut costs. The company said it whim implement a voluntary buyout program, limit hiring, reduce international network capacity at FedEx Express and adjust discretionary spending.
Though FedEx said the US economy remains solid, it announced a pre-tax cash charge for a free buyout of US employees, which is expected to total $450 million to $575 million. The company estimates this pleasure save $225 million to $275 million in fiscal 2020.
“While the U.S. economy remains solid, our international business tired during the quarter, especially in Europe,” Frederick W. Smith, FedEx chairman and chief executive officer, said. “We are winning action to mitigate the impact of this trend through new cost-reduction initiatives.”
However, the company beat expectations on both the top and in reality lines. FedEx reported earnings of $4.03 a share while analysts expected $3.94. It also beat apprehensions in revenue, reporting $17.8 billion, versus analysts’ prediction of $17.75 billion.