FedEx: Squeezed by Labor Shortages, Supply Chain Disruptions

Stock Markets30 minutes ago (Sep 22, 2021 12:00PM ET)

(C) Reuters. FedEx: Squeezed by Labor Shortages, Supply Chain Disruptions

FedEx Corporation (NYSE:FDX) is yet another company that had its earnings squeezed by labor shortages and supply chain disruptions this week.

On Tuesday afternoon, the express package transportation and delivery company reported Fiscal 2022 Q1 earnings and revenues that missed Wall Street estimates, citing labor shortages and network inefficiencies.

“The FedEx teams continue to diligently deliver for our customers under unique and challenging circumstances,” said Raj Subramaniam, FedEx Corp. president and chief operating officer. “The current labor environment is driving inefficiencies in the operation of our networks and significantly impacting our financial results. For the peak season ahead, service remains our focus and we are making investments in resources and capacity to meet our customer’s needs.”

How badly the labor environment and network inefficiencies affected FedEx’s first-quarter operating results compared to a year earlier? By $450 million, according to the company report accompanied the release of Fiscal Q1 financial results.

FedEx isn’t alone in citing labor shortages and supply chain disruptions negatively affecting its business. On Monday, D.R. Horton and Lennar (NYSE:LEN) mentioned similar problems in failing to meet Wall Street’s expectations of home deliveries.

I am neutral on this stock. (See FedEx stock charts on TipRanks)

Price Hikes Could Ease the Pain

For years, FedEx has been benefiting by growing demand for its services, as shopping shifted from brick-and-mortar retailers to online retailers, a trend that accelerated under the pandemic.

However, fast growth came with rising costs, magnified by labor shortages and network bottlenecks.

FedEx has announced a 5.90 percent shipping rate hike across most of its services, the first such significant increase in ten years, to deal with the situation. That certainly puts pressure on the company’s customers to raise their prices or find alternative ways to ship their products. There aren’t that many out there. The industry is an oligopoly, consisting of UPS (UPS), U.S. Postal Services, and FedEx, a fact that gives each company a great deal of pricing power. Thus, price hikes could solve FedEx’s problem.

Wall Street’s Take

Wall Street saw FedEx’s woes coming. Its shares have lost 2.9 percent YTD, compared to a 12.67 percent gain in UPS shares and 15.92 percent gain in the S&P500. Meanwhile, Wall Street doesn’t seem to think that the price hikes will solve these woes, sending its shares close to 5 percent lower in after-hours trade on Tuesday afternoon.

Analysts’ Take

FedEx has a broad analyst following, which does not seem to share Wall Street’s gloom and doom. Analysts rate the company’s shares a Strong Buy, with an average FedEx price target of $342.11, and a high forecast of $381.00 and a low forecast of $250.00. The average price target represents a 35.7% change from the last price of $252.07.

Apparently, analysts think that FedEx’s woes are temporary, and things will return to normal once the pandemic is over and labor shortages, network inefficiencies ease, and price hikes take effect.

Hopefully, they are right.

Disclosure: At the time of publication, Panos Mourdoukoutas had a position in FedEx and UPS.

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FedEx: Squeezed by Labor Shortages, Supply Chain Disruptions

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