The conditions are shrinking earnings at the world’s second-largest package delivery company. Factories are making fewer items for FedEx to ship and customers are opting for cheaper delivery options to save money.
FedEx on Tuesday cut its outlook for global growth and industrial production while slashing the forecast for company earnings. And CEO Fred Smith suggested trade has slowed to levels seen during the last two significant economic downturns.
It’s more evidence that the global economy has a way to go to a full recovery. Several countries in Europe are in recession and the U.S. is struggling with high unemployment and weaker manufacturing growth. And Smith said some experts have underestimated the severity of the slowdown in exports from China, where FedEx has invested heavily over the last several years, adding new planes to export goods and expanding its hubs and network.
FedEx’s forecasts are closely watched for signals of future economic health. Its results provide insight into the global economy because of the number of products it ships and the number of countries in which it does business.
The slow pace of economic recovery is hurting FedEx because it relies on sharp spurts of demand to feed its air network. Demand for air freight is usually strong coming out of a period of slow economic growth, because retailers have whittled down their inventory and need to replenish quickly when demand picks up. The current recovery in the U.S. is the slowest since World War II.
FedEx lowered its expectations for U.S. economic growth to 2.2 percent in 2012 and 1.9 percent next year. Those are mostly in line with economists’ views.
FedEx, based in Memphis, Tenn., cut its earnings forecast for the fiscal year ending in May to between $6.20 and $6.60 per share, from $6.90 to $7.40 previously.