FedEx profits slip after booting major customer Amazon

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Losing Amazon as a customer is weighing on FedEx's bottom line.The delivery company on Tuesday...

Posted: Sep 18, 2019 10:32 AM

Losing Amazon as a customer is weighing on FedEx's bottom line.

The delivery company on Tuesday posted a slight revenue decline and a 12% drop in operating income for the three months ending August 31, compared to the same period last year. Contributing to that decline, the company said, were global trade disputes, increased costs related to the expansion of its delivery services and the "loss of business from a large customer," a likely reference to Amazon.

FedEx's stock fell nearly 10% in after-hours trading.

Amazon used FedEx previously to deliver online orders to consumers. But Amazon has in recent years become a serious competitor to FedEx as it builds out its own distribution network. In June, FedEx said it would not renew its contract with Amazon for air cargo services, saying it would focus instead on other e-commerce companies such as Walmart and Target.

Then in August, FedEx said it would also stop providing ground delivery services to Amazon. FedEx has noted that Amazon made up only around 1.3% of its revenue in 2018, but losing the business of the e-commerce leader was a sign of growing competition in the logistics business.

In its Tuesday statement, FedEx lowered the forecast for its full-year 2020 earnings, citing the loss of that "large customer," as well as global trade tensions and a weakening global economic outlook. The company now expects earnings per share of $10 to $12. In 2019, FedEx posted full year earnings per share of $2.03, a particularly low number owing to its acquisition of European express delivery company TNT Express. The prior year, earnings were $16.79 per share.

"FedEx is implementing additional cost-reduction initiatives to mitigate the effects of macroeconomic uncertainty," FedEx Chief Financial Officer Alan Graf, Jr. said in a statement, adding that the company will make some reductions to its Express air network to cut costs.

The company is also hiking shipping rates again — starting on January 6, 2020. The cost to ship with FedEx Express, FedEx Ground and FedEx Home Delivery will increase by an average of 4.9%, and FedEx Freight shipping rates will increase an average of 5.9%.

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