On 16th of September FedEx announced a profit warning for the current year. That message was like a bomb exploding for the markets but especially for the share holders of FedEx. NYSE closoing price was at $205 on September 15. With the opening bell next day the share dropped by more than 20 percent. That was the biggest drop for FedEx since more than 40 years. FedEx share closed at $161.
Into a recession?
Logistic companies like FedEx, UPS or Cargo freighters from airlines are often used as an indication for the upcoming economical situation. First the world wide freight starts dropping than everything else will follow. FedEx and friends have been the winners of this pandemic. Shipping companies like Hapag Lloyd made turnover during the pandemic years they have never seen before. Lufthansa Cargo alone made profits that they never had in history. Even more than the Airline did with their passenger flights. The pandemic unleashed the online business and the number of freight exploded. The demand for freight on planes, ships and trucks increase and with it the freight rates. Never seen hights made profits the industry enjoyed. Is it really a surprise that we are coming down with rates and demand? Would anybody really expect further growth or is this the logical correction we need? We should compare the numbers today with the numbers of pre pandemic times. Than we come to the conclusion that we are getting back to normal.
Let´s have alook into some numbers
At the end of the fincancial year 2019 in may FedEx made a revenue of $69 billion. That was by far the highest revenue since 2009. At the end of the fincancial year in may 2022 the revenue is with $93 billion (please check macrotrends.net) one of the highest revenues the company has seen (yes i know it is just the revenue). The raise can not last for ever and we know the reasons and effects of the high revenues mainly driven by the high freight rates. One reason for the correction might the the way back to normal after such an expansive and massive float of monies via the FED. Another reason could be the missing flood of business after China´s reopening.
Well, some call it recession i call it correction. For me there is nothing to worry. The share of FedEx should be closley monitored. I expect a further drop to prices between $125-$150 and that should be it. In my opinion FedEx is still a healthy and money making company and the management is taking the right measures to keep the company healthy. It will be interesting what the competitors will report during the upcoming reporting period.
This is not a recommendation only my personal opinion. If you like the article please donate.