& # 39; The world's largest parcel delivery service, FedEx (NYSE :), is now the unwelcome carrier of tidings of gloom and calamity – especially for companies whose destiny is closely linked to global economic growth
During its fourth quarterly statement yesterday, FedEx said it expected its first annual decline in adjusted earnings per share in more than five years. Adjusted earnings for the current fiscal year fall by "a percentage of a middle figure" of $ 15.52 per share in the year just ended. Analysts expected $ 16.15 in the 2020-2020. FedEx had already lowered its earnings outlook in each of the two previous quarters.
Said Chief Financial Officer Alan Graf:
"Our fiscal performance for 2020 is adversely affected by continuing weakness in global trade and industrial production, especially at FedEx Express."
But even that guidance contains many assumptions that may not come to the rescue of the company. For example, FedEx sees moderate economic growth in the US, no further weakening of global economic conditions and no additional setbacks on the international trade front, meaning that the US and China will settle their dispute
FedEx revenues, which are nearly a month earlier than the fourth quarter of the majority of US companies, generally attract a lot of attention because the delivery activities are a proxy for the global economy and can give early warnings about trade and business investment . issues.
Investors take gloomy predictions like this seriously. FedEx shares have lost more than a third of their value since their peak in early 2018. Despite a 2.6% rise yesterday, closing at $ 159.96, equities have fallen by around 9% in the last three months, while the benchmark rose more than 3% in the same period
FedEx struggles on many fronts
Indeed, the company is struggling on many fronts. It has restructured its activities to cope with the rise of e-commerce orders. The recently ended contract with Amazon (NASDAQ 🙂 and announced plans to offer seven-day home delivery and to handle more of the packages that it used to route via the US Postal Service.
The acquisition of TNT in 2016 by TNT is still a work process because it has failed to unlock the value that investors were hoping to see. FedEx said in March that integration costs for the acquisition are expected to be more than $ 1.5 billion in fiscal 2021, with the potential for further escalation. The integration problems and the slowing European economy have expressed doubts about the benefits of the agreement with TNT, with some analysts questioning the wisdom behind this huge venture
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In addition to economic risks, FedEx became entangled in the cross-fire trade after the White House banned US companies from selling technology to Chinese telecommunications giant Huawei. While trying to comply, FedEx employees incorrectly reported packages with Huawei. China is now considering adding the courier to a list of so-called unreliable entities. The company's commitment is $ 4.6 billion in sales from China, or 6% of total sales, if both countries fail to solve their trade problems.
Bottom Line
FedEx's view of the weakening of world trade and the economy confirms our view that investors should increase the number of defensive stocks in their portfolios. These stocks are better positioned to withstand the economic slowdown or even a recession.
That means picking shares from sectors such as utilities, telecom companies such as BCE, and top healthcare companies, including Proctor & Gamble or Merck. These defense areas of the market have a long record in better times in times of uncertainty and also offer steadily growing dividends.
