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FedEx CFO: Our profit drop was 'horrific'

FedEx has been trying to turn its business around after a d...

Posted: Dec 18, 2019 3:13 AM
Updated: Dec 18, 2019 1:30 PM

FedEx has been trying to turn its business around after a difficult year, but its second quarter results show that it's not nearly there yet.

On Tuesday, the company reported net income of $660 million for the three months ending November 30, down nearly 40% from the same period a year earlier. Revenue also fell to $17.3 billion from $17.8 billion over that time.

Shares in FedEx dropped nearly 7% in after-hours trading Tuesday following the earnings release.

A significant drop in operating income in FedEx's Ground division — down 42% to $342 million, from $590 million in the same period last year — contributed to the quarter's disappointing results.

'We are at the bottom,' CFO of FedEx Alan Graf said in a call with Wall Street analysts Tuesday. 'Our adjusted operating profit decline year-over-year is horrific ... It's going to improve in Q3 and it's going to improve substantially in Q4, versus the prior year ... We're going to come up off the mat and improve through the rest of this year and into the next.'

The shipping company has been battling a number of challenges over the last several quarters — namely global trade disputes that cut down on FedEx's international shipping business and the loss of major customer Amazon.

Revenue in the quarter was also hurt by the later-than-usual Thanksgiving holiday, which pushed the Cyber Week shopping period out of the quarter. Income was also hit by costs associated with FedEx's effort to launch and grow Saturday and Sunday ground shipping services.

But the challenge from Amazon isn't going away yet. The Wall Street Journal reported that Amazon would no longer allow its third-party sellers to ship Prime packages via FedEx, citing performance deficiencies.

FedEx executives said on Tuesday's earnings call that non-Amazon e-commerce business is growing and that expanding to seven-day shipping should help results in coming quarters. The company has long delivered on Sundays during peak holiday seasons, but starting in January it will keep seven-day ground delivery services going year-round in most of the United States.

CEO Frederick Smith said the company has seen an 'unbelievable response' from customers to the growth of six- and seven-day shipping services.

Still, investors may be hard to convince. One analyst on the call Tuesday asked why the company hadn't considered drastic cost-cutting measures, such as laying off employees.

Smith replied that he's confident the company can turn around, and wants to have all its resources available when it does.

Correction: The original version of this story was correct. An earlier correction to this story and headline misattributed a quote about the performance of FedEx. This version of the story reverts to the original text.

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