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FedEx Corp's 1st-Quarter Earnings and Revenue Fail to Meet Expectations

FedEx Corp. (NYSE:FDX) released its first-quarter financial results on Sept. 17 after market closed. The company's earnings and revenue lagged Wall Street's estimates courtesy of the intensified trade tensions between the U.S. and China as well as mounting expenses in order to expand service offerings, including seven-day residential delivery service.

Snapshot of the quarter


The logistics giant reported adjusted earnings of $3.05 per share, down 12% from the prior-year quarter. Revenue totaled $17.05 billion, which remained flat year-over-year. Analysts had projected earnings of $3.15 per share on $17.06 billion in revenue.

"Our performance continues to be negatively impacted by a weakening global macro environment driven by increasing trade tensions and policy uncertainty," Chairman and CEO Frederick W. Smith said. "Despite these challenges, we are positioning FedEx to leverage future growth opportunities as we continue the integration of TNT Express, enhance FedEx Ground residential delivery capabilities and modernize the FedEx Express air fleet and hub operations."

FedEx cut ties with Amazon

FedEx did not renew contracts with Amazon (NASDAQ:AMZN) relating to U.S. ground deliveries and shipments as the latter is looking to build and expand its own delivery network.

This would hinder FedEx's sales because Amazon made up roughly 1.3% of annual revenue (about $1 billion in revenue). The shipping giant, however, remains optimistic that the decision to cut ties with the e-commerce behemoth would raise profitability since the Amazon shipments weren't very profitable. Smith, however, did not shy away from the fact that its short-term profitability will be unfavorably affected due to the breakup with Amazon.

Amazon is not likely to be affected by the withdrawal as the online giant can have a strong degree of reliance on United Parcel Service (NYSE:UPS), the USPS, regional carriers as well as its own transportation network. FedEx, on the other hand, would look to recover lost ground with traditional retailers like Wal-Mart (NYSE:WMT).

Financial forecast

For fiscal year 2020, FedEx has provided earnings per share guidance between $10.00 and $12.00. The company's revised lower outlook revealed "increased FedEx Ground costs and August's loss of FedEx Ground business from a large customer."

Disclosure: I do not hold any positions in the stocks mentioned.

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This article first appeared on GuruFocus.