FedEx Stock drops as higher wages hit profits

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Hit by rising labor costs and supply chain issues, parcel shipping giant

FedEx

announced lower than expected profits and downgraded its financial guidance for the full year. Wall Street now has concerns about the outlook.

Tuesday evening,

FedEx

(ticker: FDX) reported $ 4.37 in adjusted earnings per share on $ 22 billion in sales for the first quarter of its fiscal 2022. A year earlier, FedEx was earning $ 4.87 per share on $ 19.3 billion dollars in sales, so profits fell even as sales increased.

Shares fell 5.7% to $ 237.67 in pre-market trading, while futures on the

S&P 500
and

Dow Jones Industrial Average
were both up about 0.5%.

The weak quarter prompted Raymond James analyst Patrick Tyler Brown to downgrade his rating on FedEx stock. He downgraded the shares to Hold from Buy and suspended his target of $ 330 for the share price.

Too much could potentially go wrong for him to continue recommending action. “More global uncertainty,” more capital spending and financial forecasts that depend on cost improvements later in the year is a “risky elixir,” according to Brown.

JP Morgan analyst Brian Ossenbeck, who warned investors in his earnings forecast report that the quarter would be difficult, is more optimistic. It kept its buy rating on the shares, but lowered its price target to $ 329 per share from $ 346.

Still, he has concerns, saying investors are unlikely to return to the stock after the forecast drops. “Growing interest from potential long-term holders will remain lukewarm following management’s commitment to increase capacity in this environment,” the analyst wrote in a report on Wednesday.

Like Ossenbeck, Cowen analyst Helane Becker kept her buy rating but lowered her target price for stocks. Becker’s new target is $ 297 per share, up from $ 335.

“The upward trend in wages leads to an increase [shipping] rate, ”Becker wrote. The company announced a 5.9% price increase taking effect in January 2022. This is 1 percentage point higher than the 2021 price hike. Inflation “is not specific to [FedEx] but a problem that plagues a number of companies, ”Becker said. She wants FedEx to focus on improving profit margins in the future.

Overall, Wall Street still loves FedEx stocks. About 72% of analysts rate Buy stocks, while the average buy rating ratio for S&P stocks is around 55%. Analysts’ average price target, however, fell to around $ 321 per share, from $ 338 after earnings.

Most analysts are not giving up on their buying ratings, despite a tough time for FedEx shipping operations. They think the stock could go up if investors can feel comfortable that all the bad news is reflected in the price.

Write to Al Root at [email protected]