Why FedEx’s profit warning is such bad news for the U.S. economy

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FedEx Corp. has bad news for investors, but what the logistics company’s massive profit warning says about the U.S. economy may be even worse.

“The FedEx news was pretty stark. But when I read it, I wasn’t surprised,” Carl Riccadonna, chief U.S. economist at BNP Paribas, told MarketWatch Friday. He said it fits his view that a “massive deceleration” is underway for the U.S. economy.

FedEx
FDX,
-21.75%

and other logistics and delivery companies are “a great bellwether for the economy,” Riccadonna said. “They tell you about leading economic conditions.”

FedEx late Thursday slashed its earnings forecast, pulled its outlook for the year, and called for a shortfall of half a billion dollars.

See also: U.S. stocks sink as FedEx warning rattles investors, on track for big weekly losses

The global logistics and shipping company represents “the pulse of global goods activity,” said Jack Ablin, chief investment officer at Cresset Capital.

“Global shipping activity has been in a downtrend. Weekly trucking demand, after peaking last February, has been in freefall,” Ablin said. Companies that “double- and triple-ordered during supply chain shortages now face brimming inventory.”

FedEx’s warning offered scant details, tersely pinning the shortfalls to slowdowns in Asia and Europe.

Wall Street was quick to point out that other parts of FedEx’s business, including its express service, were also ailing.

The stock fell more than 22% on Friday, looking poised to close at its lowest price in more than two years and to suffer its worst one-day percentage decline ever, according to data going back to April 1978.

Several other giant U.S. companies have sounded warnings or posted quarterly profits well below Wall Street expectations, including Target Corp.
TGT,
-0.85%

and Walmart Inc.
WMT,
+0.22%
.

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Retailers are also struggling to adjust to a glut in inventories bent out of shape by the pandemic and by supply-chain problems, and as inflation has led some consumers to hold off on purchases or seek cheaper alternatives for products they usually buy.

It may be too early to say whether other companies will sound similar profit warnings or report lower profits, potentially further roiling markets in the weeks and months to come. Analysts “have been slow to downgrade their earnings estimates” for corporate profits, Cresset Capital’s Ablin said.

Some companies might “defy the math,” but ultimately, macroeconomic trends drive microeconomic stories, BNP Paribas’ Riccadonna said.

“[I] think you are going to see more businesses talking about the slowing economy, less pricing power,” Riccadonna said. And in turn, “margin compression and the need to liquidate inventories” means companies will need to “mark down prices.”



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