FedEx warns of a global recession, cutting sales forecast by half a billion dollars

FedEx warned that a global recession could be coming, as demand for packages around the world tumbles.

Shares of FedEx plunged 21% Friday - the biggest one-day drop in its history - after the company warned late Thursday that a slowing economy will cause it to fall $500 million short of its revenue target.

The weakening global economy, particularly in Asia and Europe, has hurt FedEx's express delivery business. The company said demand for packages weakened considerably in the final weeks of the quarter, CNN reported.

What's more, FedEx said it expects business conditions to further weaken in the current second quarter, which runs through November. While global revenue this quarter is likely to be flat compared to a year earlier, FedEx's earnings are expected to plunge more than 40%. Analysts had been forecasting a gain in profit.

FedEx CEO Raj Subramaniam was asked if he believes the slowdown in his business is a sign of the start of a global recession.

He said FedEx is seeing a decline in the volume of freight it is handling in every region around the world. While he said US consumers are somewhat protected by the strength of the dollar, which is increasing their purchasing power, but he said FedEx is seeing a slowdown in Americans' spending as well.

The warning sparked a broad sell-off in US stocks. Additionally, the Dow Transportation Index fell 5%, while shares of FedEx rival UPS closed about 5% lower.

The 21% single-day loss for FedEx shares easily tops their 16% plunge the day of the 1987 stock market crash, and a 15% drop during the stocks sell-off in March 2020 in the early days of the pandemic. Shares of FedEx are now down 38% so far this year.

The company said it is responding by reducing flights and temporarily parking aircraft, trimming hours for its staff, delaying some hiring plans and closing 90 FedEx Office locations as well as five corporate offices. It is also cutting $500 million from its capital expenditure budget for its fiscal year, which runs through May of 2023, trimming that spending to $6.3 billion.

FedEx said its adjusted earnings for the quarter that ended August 31 will be down $260 million, or 17%, from a year earlier. Revenue rose $1.2 billion, or 5%, despite missing the company's earlier target.

While it gave the sharply lowered guidance for the current quarter, FedEx said it was withdrawing its full-year guidance issued in June due to the "continued volatile operating environment.

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