(Bloomberg) — Wall Street analysts didn’t mince their words when discussing FedEx Corp.’s forecast. for the current quarter — which missed by a wide margin — and withdrawing guidance for the full year. It is very bad.
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For Deutsche Bank AG researchers it is the worst report they have seen in two decades.
“FedEx last night announced the weakest set of results we’ve seen relative to expectations in our ~20 years of analyzing companies,” the bank’s analysts, including Amit Mehrotra, said in a note to clients.
The package delivery giant said in a statement Thursday night that it expects first-quarter earnings, excluding certain items, to be $3.44 per share, or about 33% below analysts’ average estimate of $5.10. In addition, FedEx withdrew its 2023 earnings forecast, saying macroeconomic trends have “deteriorated significantly,” both internationally and in the U.S., and are likely to deteriorate further, fueling fears of a broad-based decline in earnings.
At least four sell-side analysts who cover the stock cut FedEx recommendations on Friday, as the stock sank as much as 24% before closing the day down 21%. Robert W. Baird & Co. analyst Garrett Holland summed up the views, calling it an “ugly quarter.” The gloomy outlook sent shares of rival United Parcel Service Inc., e-commerce giant Amazon.com Inc. and European distribution companies quite in the red.
“The FedEx warning came as a slap in the face. It is a solid sign that the economy has started to slow down,” said Ipek Ozkardeskaya, senior analyst at Swissquote. “This is certainly the first of a series of warnings we may see for the coming quarters.”
Some strategists were already cautious about the earnings outlook before FedEx’s warning. Michael Hartnett of Bank of America Corp. said in a note on Friday that the earnings slump would likely push U.S. stocks to new lows, while Deutsche Bank strategists said corporate earnings were set to decline, putting the S&P 500 at high risk of a deeper selloff.
FedEx is not the only company to warn that the macroeconomic background is likely to affect results. The chief financial officer of General Electric Co. said on Thursday that supply chain challenges weighed on its performance in the third quarter, while some of Wall Street’s biggest banks expected deep declines in investment banking fees for the current quarter as investors remained worried by inflation, interest rate hikes and possible recession.
In Europe, profit warnings are already trickling in. British group Associated British Foods Plc warned that profits next financial year will be lower as rising energy costs and a stronger dollar weigh on clothing business Primark, while Swedish appliance maker Electrolux AB said profits will fall “significantly » in the third quarter amid sharply accelerating inflation and low consumer confidence.
Those ominous signs have already pushed analysts to moderate expectations, with weekly earnings downgrades outpacing upgrades for about four months in the U.S., according to a Citigroup Inc. But there may still be a long way to go to reset expectations – analysts’ earnings estimates for US companies are near record highs, despite an 18% drop for the benchmark S&P 500 this year.
To offset the myriad headwinds facing companies, some strategists suggest being selective about regional exposures heading into the earnings season.
“The weakness in FedEx earnings is concentrated in Asia and Europe, where we really see the biggest economic challenges, while US activity is quite strong,” said Marija Veitmane, senior strategist at State Street Global Markets. “This is consistent with our broader assessment of macroeconomic conditions at this time. Indeed, the US is our favorite market.”
Strategists at Goldman Sachs Group Inc. they agree, saying that American companies that do most of their work at home will fare better than those with exposure to Europe, where a recession is all but guaranteed. In dollar terms, the Stoxx Europe 600 has lagged the S&P 500 this year, while a 100% domestically sold Goldman basket of US companies outperformed those tracking those with high exposure to Europe.
(Updates closing price for FedEx stock.)
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