FedEx tumbles to lowest in a year after cutting its yearly outlook as a labor shortage sends costs soaring

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FedEx tumbles to lowest in a year after cutting its yearly outlook as a labor shortage sends costs soaring
A FedEx delivery man with packages in Miami. Joe Raedle/Getty Images
  • FedEx tumbled as much as 9% Wednesday after the delivery company cuts its yearly outlook.
  • The view on fiscal 2022 adjusted earnings was cut to $18.25 to $19.50 a share from $18.90 to $19.90 a share.
  • FedEx expects to see "gradual improvement" in labor availability.

FedEx stock tumbled to its lowest price in more than a year Wednesday after the delivery services company cut its yearly outlook as a labor shortage pushed costs higher.

The company late Tuesday said it now expects annual earnings before certain adjustments of $18.25 to $19.50 a share. It previously expected $18.90 to $19.90 a share, with the reduced outlook coming after its fiscal first-quarter 2022 results were lower than it had anticipated in June.

"Our results for the first quarter reflect higher operating costs we are incurring during this uncertain and challenging operating environment," Michael Lenz, FedEx's CFO, said in the earnings report.

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Investors swept FedEx stock down as much as 9.2% to $228.98, the lowest price since September 11, 2020, then pared the decline to 8.5%. Volume was heavy, with about 9.4 million shares traded compared with a daily average of about 2.3 million shares. Shares of rival UPS dropped 1.8%.

FedEx said its first-quarter operating results were hurt by an increase in costs by about $450 million from a year earlier, stemming from a constrained labor market. The shortage led to higher wages and network inefficiencies, among other things.

Fiscal first-quarter adjusted earnings of $4.37 a share were well below the estimate of $4.88 a share expected in a FactSet poll of analysts. Revenue rose by 14% to $22 billion, slightly ahead of the $21.9 billion consensus estimate.

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FedEx foresees "gradual improvement" in labor availability and its work on managing revenue which should help it moved toward earnings growth in fiscal 2022.

"We had moved well below the Street for F1Q in anticipation of rising labor costs, and the quarter did not disappoint, as Ground margins were well below our estimate, offset by better-than-expected Express and Freight results," said Bank of America analyst ​​Ken Hoexter in a note Wednesday. The bank had projected per-share earnings of $4.33.

"We reiterate our Buy given the below peer valuation and improving rate environment which should counter rising costs," said BofA, which lowered its price target on the stock to $290 from $340.

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