Don't shoot the macroeconomic messenger

Your FedEx package has been delivered, but it contains bad news: The US economy is in a rut.

FedEx sank 6.45% after the delivery giant reported it is cutting its full-year guidance—again. Here are some other highlights from the Q3 announcement:

• EPS of $4.51 came in below the $4.57 analysts projected
• The company reported $22.2 billion in revenue, beating expectations of $21.9 billion
• FedEx now expects full-year adjusted earnings per share to come in between $18 and $18.60, lower than the $18.95 expected by analysts. This is the third consecutive quarter FedEx has lowered its full-year guidance.
• The company also cautioned that full-year revenue may decline due to economic uncertainty and waning consumer confidence.

FedEx CEO Raj Subramaniam admitted that the company has been “navigating a very challenging operating environment.” Management pointed to inflation putting pressure on shipping costs, as well as ongoing questions about how President Trump’s tariffs will affect the industrial economy, as some of the biggest threats to FedEx’s growth.

FedEx is just the latest company warning of a broader consumer slowdown. Kohl’s, Dick’s Sporting Goods, and Walmart are just a few of the big box retailers that have recently told investors that shoppers are cutting their spending back. But FedEx is especially seen as a bellwether, given its business is directly tied to consumer activity.

That’s why FedEx is relying even more on higher-margin industrial shipments from businesses to other businesses these days. The problem is that a trade war could mean lower manufacturing activity and therefore lower freight demand, cutting off FedEx’s remaining avenue for profit growth.

It’s no wonder Citi analyst Ariel Rosa cut his price target on FedEx from $317 to $305 today, and why Loop Capital analyst Rick Paterson downgraded the stock from “Neutral” to “Sell,” calling FedEx a “really bad recession stock.”

Breaking up to get ahead

But it wasn’t all bad news for the delivery giant: FedEx said its plan to spin off its freight business into a separate publicly traded company is still on track.

The move, which was announced in December, could be a lucrative boon. So lucrative, in fact, that the FedEx Freight standalone company could be worth over $30 billion, according to Bloomberg Intelligence estimates.—LB