FedEx shares dropped 8% in premarket trading on March 21 after the company lowered its annual forecast. This decision has raised new concerns about the health of the U.S. manufacturing sector amid continuing economic uncertainties.
According to Reuters, the revision has intensified worries about the impact of trade policies and tariffs. The company’s struggles with weak industrial volumes highlight the challenges it faces in a shifting economic landscape.
Weakness in Industrial Economy
FedEx CEO Raj Subramaniam described the current operating environment as “very challenging” and noted that a “weakness in the industrial economy” was heavily impacting the company’s higher-margin business-to-business (B2B) volumes.
This decline in industrial shipments is crucial because they are a significant source of FedEx’s profits, highlighting the vulnerability of the company to shifts in the manufacturing sector.
FedEx, along with competitors like UPS and DHL, is often seen as a barometer for the global economy. As manufacturing shipments, which drive high-margin deliveries, are weakening, so too are the fortunes of these shipping giants.
On the same day, UPS saw its shares drop by 1.5%, while European rival DHL experienced a 2.3% decline. The broader market response indicates mounting uncertainty about future demand for transportation services.
Impact of Tariffs
The uncertainty surrounding Trump’s trade policies, particularly the on-again, off-again import tariffs, is deepening concerns. These tariffs have created an environment where businesses are more cautious with spending, particularly with regard to logistics and delivery.
Analysts have warned that the tariffs could lead to a recession, which would further reduce demand for services like FedEx’s.
FedEx has already begun to reduce costs in response to changes in demand. However, the shift toward low-margin e-commerce deliveries from companies like Temu and Shein has outpaced the demand for higher-margin B2B shipments.
This trend has made it more difficult for FedEx to maintain profitability. As a result, the company revised its fiscal 2025 adjusted earnings per share forecast to a range of $18.00 to $18.60, a drop from the previous forecast of $19.00 to $20.00.
While this forecast cut was not entirely unexpected, the extent of the revision, especially for the final quarter, was more significant than many analysts had feared.
Morgan Stanley’s Take on the Situation
FedEx’s Q3 print and full-year forecast cut will likely exacerbate concerns of structural pressures in the parcel business – said analysts from Morgan Stanley
This highlights the increasing challenges FedEx faces, as its efforts to reduce costs may be insufficient to overcome the broader economic pressures affecting the parcel delivery industry.
In addition to the earnings adjustment, FedEx anticipates that its revenue for the fiscal year ending in May will be flat or slightly down compared to the previous year, a shift from the earlier forecast, which had predicted stability in revenue.
This news reinforces the sense of economic uncertainty and the company’s struggle to adapt to changing market dynamics.
