FedEx CEO Raj Subramaniam’s ominous warning of a worldwide recession drove the shipping company’s shares to their worst day in decades Friday and sent Wall Street’s main indexes to near two-month lows.
FedEx’s stock plunged more than 21% after the company reported a major slump in global shipping volumes and withdrew its full-year guidance. Friday’s decline was the worst one-day result in company history dating to at least 1978, according to Dow Jones Market Data.
The company’s struggles reverberated through the broader market after CNBC’s Jim Cramer asked Subramaniam in an interview Thursday if he felt the economy was headed for a “worldwide recession.”
“I think so,” Subramaniam said. “These numbers, they don’t portend well.”
“We are a reflection of everybody else’s business, especially the high-value economy in the world,” the FedEx CEO added.
FedEx is widely seen as a bellwether for the overall health of the US economy, with a slowdown in shipments feeding fears of a slowdown in economic activity. US GDP has already declined for two straight quarters – the widely-held definition of a recession.
The company’s first-quarter earnings and revenue fell far short of analysts’ expectations, with analysts from Deutsche Bank decrying the quarterly report as the worst miss they’ve tracked in 20 years.
FedEx, which reported after the bell on Thursday, said its adjusted earnings per share were $3.44 on revenue of $23.2 billion for the quarter. Analysts polled by Refinitiv had expected earnings per share of $5.14 on revenue of $23.59 billion.
“We’re seeing that volume decline in every segment around the world, and so you know, we’ve just started our second quarter,” Subramaniam said. “The weekly numbers are not looking so good, so we just assume at this point that the economic conditions are not really good.”
“We are a reflection of everybody else’s business, especially the high-value economy in the world,” he added.
The Dow quickly fell more than 300 points when it opened on Friday before closing down 139.40. The decline capped a painful week in which the Dow plunged nearly 1,300 points after Tuesday’s release of the latest inflation print, which was 8.3%.
All of the 11 S&P sectors declined, led by a 2.3% fall in the industrial sector. The Dow Jones Transport Average Index dropped 5.1%.
FedEx Rivals UPS and XPO Logistics slid 4.4% and 6.8%, respectively, while Amazon.com Inc slipped 2.9%.
“What people are worried about is this the canary in the coal mine, we start to see some warnings from some companies across different industries suggesting outlook might be worse than we had been pricing it,” said Todd Lowenstein, chief equity strategist of the Private Bank at Union Bank.
“The market is in a sort of tug of war for the most part. On one hand you have these rapidly deteriorating fundamentals, on the other hand there was this what I call a misplaced hope for sort of a resurrection of the Fed pivot. The market is increasingly coming to terms that the Fed is not going to be there to save the day.”
The Fed is widely expected to deliver the third straight 75-basis-point rate hike at its meeting on Sept 20-21 after recent data failed to alter the expected course of aggressive policy tightening.
FedEx’s profit warning Thursday triggered a frenzy in after-hours trading that spilled into Friday trading. The company’s ticker was the most visited on Yahoo Finance’s platform as investors tracked the carnage.
“Global volumes declined as macroeconomic trends significantly worsened later in the quarter, both internationally and in the US,” Subramaniam added in a company release. “We are swiftly addressing these headwinds, but given the speed at which conditions shifted, first quarter results are below our expectations.”
FedEx also unveiled plans for a series of cost-cutting measures, including the closure of 90 office locations, a reduction of flight volumes and a hiring slowdown.
Major US stock indices all finished lower as investors digested the FedEx CEO’s warning. The Dow Jones Industrial Average experienced its worst weekly losses since 2020 following major declines earlier this week on hotter-than-expected August inflation data.