FedEx Corp on Tuesday dropped the most in more than five years after increased labor costs and a bumpy integration effort for the company’s TNT Express acquisition weighed on profit.
The weak performance got FedEx off to a “messy start” in its new fiscal year, Morgan Stanley said in a note to clients, but FedEx is betting on a rebound, raising its full-year earnings target by US$0.20 a share to as much as US$17.80.
That puts pressure on the company to perform much better in the holiday season and the rest of its fiscal year ending on May 31 next year.
“The end result is that the guide is even more back-half loaded and highly dependent on the successful capture of expected TNT synergies and improved revenue mix at TNT,” Stephens Inc analyst Jack Atkins said in a note on Tuesday.
FedEx fell 5.5 percent to US$241.58 at the close in New York, the biggest one-day drop since March 2013.
The shares have dropped 3.2 percent this year through Tuesday, while the Standard & Poor’s 500 Index has gained 8.6 percent.
Increased compensation reduced earnings by US$170 million, or US$0.48 per share, during the fiscal first quarter, dragging results below analysts’ estimates.
The courier is also struggling to boost profit at TNT, a European operation that FedEx bought in 2016 for US$4.8 billion. The unit last year suffered a cyberattack that drove away customers and increased costs.
Salaries and benefits jumped 11 percent in the quarter and are to show large gains in the fiscal second quarter because, with the US corporate tax cut, FedEx decided to accelerate wage increases to April next year instead of October, said Helane Becker, an analyst with Cowen & Co.
FedEx also faced fuel costs that rose 40 percent, she said.
“You have very tough year-over-year comps in that line item for six months,” Becker said in an interview with Bloomberg TV.
Later this year, “the numbers won’t look so huge,” she added.
Earnings climbed to US$3.46 a share in the first quarter, trailing the average of analysts’ estimates by US$0.34. Sales of US$17.1 billion outpaced expectations of US$16.9 billion.
For the full fiscal year, earnings are to be US$17.20 to US$17.80, FedEx said.
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