FedEx Corp. has bad news for investors, but the even-worse news may be what the logistics company’s massive profit warning says about the U.S. economy.
“The FedEx news was pretty stark. But when I read it, I wasn’t surprised,” BNP Paribas Chief U.S. Economist Carl Riccadonna told MarketWatch Friday. He said it fits his view that a “massive deceleration” is under way for the U.S. economy.
and other logistics and delivery companies are “a great bellwether for the economy,” Riccadonna said. “They tell you about leading economic conditions.”
FedEx late Thursday slashed its earnings forecast, pulled its outlook for the year, and called for a shortfall of half a billion dollars.
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The global logistics and shipping company represents “the pulse of global goods activity,” said Jack Ablin, chief investment officer at Cresset Capital.
“Global shipping activity has been in a downtrend. Weekly trucking demand, after peaking last February, has been in freefall,” Ablin said. Companies that “double- and triple-ordered during supply chain shortages now face brimming inventory.”
warning came late Thursday and offered scant details, tersely pinning the shortfalls to slowdowns in Asia and Europe.
Wall Street was quick to point out that other parts of its business, including its express service, were also ailing.
The stock tanked more than 22% on Friday, looking poised to close at its lowest price in more than two years, and to suffer its worst one-day percentage decline ever, according to data going back to April 1978.
Several giant U.S. companies have sounded warnings or posted quarterly profits well-below Wall Street expectations, including Target Corp.
and Walmart Inc.
in the spring.
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Retailers are also dealing with a glut as they struggling to adjust inventories that are bent out of shape with the pandemic and supply-chain problems, and as inflation has some consumers pausing their shopping trips or seeking cheaper alternatives for products they usually buy.
It may be too early to say whether other companies will sound similar profit warnings or report lower profits, roiling markets in the weeks and months to come. Analysts “have been slow to downgrade their earnings estimates” for corporate profits, Cresset Capital’s Amblin said.
Some companies might “defy the math,” but ultimately macroeconomic trends drive microeconomic stories, BNP Paribas’ Riccadonna said.
“[I] think you are going to see more businesses talking about the slowing economy, less pricing power,” he said. And in turn, “margin compression and the need to liquidate inventories” means companies will need to “mark down prices.”