Published - September 19, 2022 @ 12:14 PM (EET)

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Last week, FedEx (NYSE:FDX) surprised investors by announcing its quarterly results sooner than expected, which quickly turned out to be unpleasant. The shipping giant withdrew its full-year guidance and warned its fiscal first quarter would come in well below expectations.

Citing weakening demand in global shipment volumes,  shares of FedEx closed down over 21% Friday, its biggest one-day drop in over 40 years and wiping around $11 billion off the company's market capitalization.

The warning set off fresh worries about the outlook for the global economy and sparked a wide selloff in stock markets, with all three major US stock indexes lower last week.

WHAT HAPPENED

Flagging weakness in Asia and challenges in Europe, FedEx pulled its prior outlook and reported preliminary results for the latest quarter, which fell well below Wall Street's expectations.  

For the fiscal first quarter, earnings, excluding some items, were projected to be $3.44 a share compared with the average analysts' estimate of $5.10.

CEO Raj Subramaniam said in the release last week, "global volumes declined as macroeconomic trends significantly worsened later in the quarter, both internationally and in the US."  

He added, "while this performance is disappointing, we are aggressively accelerating cost reduction efforts."

The cost-cutting initiatives will include reducing airplane flying hours, cutting Sunday operations at some ground locations, deferring hiring, and closing more than 90 FedEx Office retail locations, FedEx said.

NOW WHAT

According to Robert W. Baird & Co. analyst Garrett Holland, it was an "ugly quarter" as "global freight has significantly deteriorated."  

Elsewhere, Deutsche Bank AG analysts called it "the weakest set of results we've seen relative to expectations" in about 20 years of analyzing companies, while four analysts downgraded the stock after the FedEx announcements.

The average analyst price target came down to roughly $250 a share from nearly $290 a share earlier.

Though FedEx has survived many economic cycles, given the magnitudes of the miss and the uncertainty of its future, investors understandably are being cautious and heading to the sidelines.