FedEx Corporation (NYSE:FDX) has reported disappointing results in Q2 2020. Its revenues have declined to $17.3 billion in Q2 2020, a marginal decline from $17.8 billion from the same period last year. Chief Finance Officer and Executive Vice President of FedEx Corp, Alan Graf, said he is frustrated with the results. He expects the same sentiment from the investors. The company is now at a lower level, but it will stage a comeback.
Loss of Amazon
FedEx has reported lower revenues mainly on account of losing Amazon and increased expenses in this quarter. Amazon fired back by temporarily halting third-party sellers this week. The third-party sellers account for 58% of the sales of Amazon and use home and ground delivery services of FedEx’s prime orders. Amazon is gradually developing its delivery network.
FedEx also said weak global conditions are also responsible for the dip in earnings. FedEx decided not to renew the contract with Amazon in August 2019. It has created a larger dent in its Q2 earnings. As a result, the company has lowered its guidance for 2020.
Execs at FedEx underestimated the spending
The executives at FedEx have underestimated the spending related to its transition to the seven-day delivery. The cyber Monday shipments have reached over 38 million than the estimates of handling 33 million packages. As a result, the ground staff at FedEx struggled to handle the packages during the Cyber Monday sale.
Geopolitical tensions negatively impacted
Geopolitical tensions such as trade wars between the US and China have negatively impacted the earnings of FedEx. The company has suffered from increased expenses on account of TNT integration. FedEx expects ground interoperability by 2020 in Europe.
FedEx plans to slash the spending by lowering the flight hours by 6 to 8% in global and domestic regions. It will also achieve additional savings because several pilots are due for retirement next year.
FedEx invests in new technology
FedEx expects positive returns in Q4 2020 through its continued investments in facility improvements, innovative technology, and expansion.
According to FedEx, the continued investments will help the company to make a turnaround and outpace Amazon in 2021. If all the positive things happen as planned, the company expects to lap Amazon in 2021.