Following disappointing Q3 earnings and uninspiring guidance from FedEx Corporation (NYSE:FDX), shares tumbled more than 6%, the company’s biggest fall since September 2011.
The global courier services company’s third quarter profit slumped 31%. Net income fell to $361 million, or $1.13 per share, down from $521 million, or $1.65 per in the same quarter a year ago. That was short of analysts’ expectations of $1.38 per share on revenue of $10.9 billion
Weighing on revenue was customers’ shift to less-expensive ground shipping, which hurt the company’s airfreight business. CEO Frederick W. Smith called the quarter “very challenging.”
Looking ahead, the company expects to earn 94 cents to $1.34 per share in its fiscal fourth quarter, and $6-$6.20 per share for the year. Those projections were below analysts’ forecasts of $2.12 and $6.35 per share respectively.
In response to weakness in the global air freight business, and customers opting for slower, cheaper ways to ship packages, the company is cutting capacity to Asia and will divest less profitable shipments into “lower cost networks.” The company is also mulling retiring older, less-efficient planes.
The Memphis, TN based company plans to slash annual costs by $1.7 billion by 2016 with buyouts that will cut its headcount more than 10% by May 2014.
FedEx Corporation (NYSE:FDX) will spend $450-$550 million in cash buyouts during the fiscal year ending in May. “Some additional costs” are expected to be incurred over the following 12 months.
Several analysts lowered expectations, but they also expect the company’s bottom line to improve along with an improving economy.
But the big problem is that people are simply sending less items overall.
More and more messages and offerings are delivered via fax, email, social media and a plethora of mobile devices. Fewer people write letters, pay bills and send correspondence using “snail mail.” When you absolutely have to get it there overnight, the Internet is now the way most people go.
A prime example is the U.S. Post Office, which is near bankruptcy. Saturday mail delivery is on the way out amid the declining mail volume.
Daily deals sites, like Groupon Inc (NASDAQ:GRPN), have also taken share away from traditional mail delivery. These sites quickly send out local and national deals through email and apps.
Groupon shares, however, have also slumped. Recent earnings missed analysts’ expectations. The company is searching for a new leader after ousting its former charismatic CEO Andrew Mason. Shares popped after news of Mason’s departure, but his exit doesn’t fix what’s ailing Groupon. The company needs to regain and retain customers and retailers. Chatter has made the rounds that Groupon Inc (NASDAQ:GRPN) is a highly likely takeover candidate. Trading some 77% below its $20 IPO price, Groupon Inc (NASDAQ:GRPN) could make a nice deal for, say, Facebook Inc (NASDAQ:FB).
Facebook Inc (NASDAQ:FB), the world’s largest social networking site with one billion plus members, seems like a likely white knight for Groupon Inc (NASDAQ:GRPN). Facebook Inc (NASDAQ:FB) currently has its sights set on morphing into a true mobile company and is working on monetizing is massive user base. Groupon Inc (NASDAQ:GRPN) could be a good fit and would give Facebook Inc (NASDAQ:FB) shareholders something to like, since FB shares have waned since its May 2012 IPO.
But fits and starts are always a concern.
FedEx Corporation (NYSE:FDX) thought Kinko’s was a good fit when it bought the office supply company as a way to offer people an “office away from the office.” But again, new mobile devices have muscled into that territory.
Also hurting FedEx Corporation (NYSE:FDX) is the growing presence of warehouses from Amazon.com, Inc. (NASDAQ:AMZN) and other internet retailers that promise next day or same day delivery (not from FedEx).
Until FedEx Corporation (NYSE:FDX) delivers some inspiring news, investors shouldn’t expect much.
The article FedEx Fails to Deliver originally appeared on Fool.com and is written by Diane Alter.
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