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FedEx warns of ‘macroeconomic weakness and trade uncertainty’ affecting business

FedEx (FDX) reported Tuesday that ongoing trade uncertainty would impact its business in the current fiscal year, while reporting better-than-expected earnings results for its fourth quarter.

The Memphis, Tennessee-based courier company posted adjusted earnings of $5.01 per share, beating consensus expectations for $4.81 a share, according to Bloomberg data. Quarterly revenue of $17.8 billion was in-line with expectations.

FedEx provided a tepid outlook for the 2020 fiscal year, saying in a statement that “macroeconomic weakness and trade uncertainty, continued mix shift to lower-yielding services and a strategic decision to not renew a customer contract will negatively impact operating income.”

“Our fiscal 2020 performance is being negatively affected by continued weakness in global trade and industrial production, especially at FedEx Express,” Alan B. Graf, Jr., FedEx executive vice president and CFO, said in a statement. “While we are adjusting our costs to mitigate revenue weakness and market shifts, we will continue to invest in areas that expand our capabilities, improve our long-term efficiencies and reduce our cost to serve.”

The company said it expects that capital expenditures will total $5.9 billion in fiscal 2020, versus $6.16 billion in full-year capex anticipated by consensus analysts.

Shares of FedEx fluctuated between gains and losses after market close Tuesday. The company’s stock has fallen 3.3% for the year-to-date, versus a 16.3% gain in the S&P 500 (^GSPC).

Previously, FedEx lowered its fiscal 2019 earnings guidance in both March and December, with management at the time citing a softer macroeconomic environment in Asia and Europe.

Investors on Tuesday were closely eyeing the company’s updated outlook for fiscal 2020 for signals of the impact of ongoing geopolitical concerns.

Namely, the international courier company has been swept into the crosshairs of the U.S.-China trade war as tensions escalated between the two countries in recent months.

FedEx announced on Monday that it filed a lawsuit against the U.S. Commerce Department over recent updates to the Trump administration’s import and export rules.

The lawsuit comes after the U.S. government in May added Chinese telecommunications giant Huawei to a list of entities barred from receiving U.S. technology without Commerce Department license. Shortly thereafter, Huawei complained that FedEx had delivered several of its packages to incorrect addresses, sparking an investigation into FedEx by China.

On a call with investors Tuesday, however, FedEx management said that the Huawei packages were “only peripherally involved” in the lawsuit and that the suit was instead filed as a response to years’ worth of regulation over import and export controls.

People visit a FedEx Express booth during the China International Import Expo (CIIE) at the National Exhibition and Convention Center in Shanghai, China November 7, 2018. Picture taken November 7, 2018. REUTERS/Stringer  ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. CHINA OUT.
People visit a FedEx Express booth during the China International Import Expo (CIIE) at the National Exhibition and Convention Center in Shanghai, China November 7, 2018. Picture taken November 7, 2018. REUTERS/Stringer

In a court filing, FedEx said that the export restriction rules “essentially deputize FedEx to police the contents of the millions of packages it ships daily even though doing so is a virtually impossible task, logistically, economically, and in many cases, legally.” FedEx argues that it should not be liable in the event that it accidentally ships products violating the Trump administrations’ restrictions.

Macroeconomic concerns aside, FedEx has also faced headwinds at home. E-commerce giant Amazon (AMZN) has been pushing deeper into the delivery space, threatening to encroach on FedEx’s key business.

Earlier this month, FedEx announced that it decided not to renew a U.S. domestic contract to fly packages for Amazon.com, with the current agreement ending June 30. Less than 1.3% of FedEx’s total revenue for the 12 months ending December 31 was attributable to Amazon, FedEx said in a statement.

FedEx’s management said Tuesday that it expected the decision not to renew its contract with Amazon to create a near-term headwind, but that this will reverse to a positive in fiscal 2021 as the company optimizes its own network to account for the gap.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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