FedEx Miss Is Worst Deutsche Bank Analysts Have Seen in 20 Years

(Bloomberg) — Wall Street analysts were tight-lipped when discussing FedEx Corp.’s forecast. for the current quarter, which was missed by a landslide, and its withdrawal from full-year guidance. It is very bad.

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For researchers at Deutsche Bank AG, it’s the worst report they’ve seen in two decades.

“FedEx last night announced the weakest set of results we’ve seen relative to expectations in our ~20 years of analyzing companies,” the bank’s analysts, including Amit Mehrotra, said in a note to the customers

The package delivery giant said in a statement Thursday night that it expects first-quarter earnings, excluding certain items, to be $3.44 a share, or about 33% below the average estimate of $5.10 analysts. In addition, FedEx withdrew its earnings forecast for 2023, saying macroeconomic trends have “worsened significantly,” both internationally and in the U.S., and are likely to deteriorate further, fueling fears of a widespread decline in earnings.

At least four sell-side analysts covering the stock downgraded their recommendations on FedEx on Friday, as the stock sank as much as 24% before ending the day down 21%. Robert W. Baird & Co. analyst Garrett Holland summed up the views, calling it an “ugly quarter.” The bleak outlook pushed shares of rival United Parcel Service Inc., e-commerce giant Amazon.com Inc. and European delivery companies to the bottom.

“The FedEx warning was a slap in the face. It’s a solid signal that the economy started to slow down,” said Ipek Ozkardeskaya, senior analyst at Swissquote. “This is certainly the first of a series of caveats we may see for the coming quarters.”

Some strategists were already cautious about the earnings outlook before FedEx’s warning. Bank of America Corp.’s Michael Hartnett said in a note on Friday that an earnings recession will likely drive U.S. stocks to new lows, while Deutsche Bank strategists have said corporate profits will fall, putting the S&P 500 at risk of a deeper selloff.

FedEx is not the only company warning that the macroeconomic context is likely to affect results. The chief financial officer of General Electric Co. said on Thursday that supply chain challenges are weighing on its third-quarter performance, while some of Wall Street’s biggest banks expect deep declines in investment banking fees for the current quarter with investors still scared of inflation. , rate hikes and possible recession.

In Europe, the profit announcements have already started to arrive. British conglomerate Associated British Foods Plc warned that profits next fiscal year will be lower as rising energy costs and a stronger dollar weigh on its Primark clothing business, while Swedish appliance maker Electrolux AB said earnings would decline “significantly” in the third quarter amid rapidly accelerating inflation and low consumer confidence.

Those ominous signs have already caused analysts to moderate expectations, with the weekly earnings cut beating updates for about four months in the US, according to a Citigroup Inc. index. But there may still be a long way to go to reset expectations: Analysts’ earnings estimates for U.S. companies are near record highs, despite an 18% drop in the S&P 500 this year.

To protect against the myriad headwinds facing companies, some strategists suggest being selective about regional exposures heading into earnings season.

“FedEx’s earnings weakness is centered in Asia and Europe, where we’re actually seeing the biggest economic challenges, while North American activity is reasonably strong,” said Marija Veitmane, senior strategist at State Street Global Markets. “This fits with our broader assessment of macro conditions at the moment. In fact, the US is our favorite market.”

Strategists at Goldman Sachs Group Inc. they agree, saying that American companies that do most of their business at home will fare better than those exposed to Europe, where a recession is virtually assured. In dollar terms, the Stoxx Europe 600 has underperformed the S&P 500 this year, while a Goldman basket of US companies with 100% domestic sales has outperformed those with high exposure in Europe

(Updates the closing price of FedEx stock.)

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