Squeezed by Labor Shortages, Supply Chain Disruptions By TipRanks
FedEx Corporation (NYSE:) is yet another company that had its earnings squeezed by labor shortages and supply chain disruptions this week.
The express delivery and package transport company released Fiscal 2022 Q1 results and revenue on Tuesday afternoon. These numbers were lower than Wall Street’s estimates due to labor shortages, network inefficiencies, and other factors.
FedEx Corp.’s president Raj Subramaniam said, “The FedEx employees continue to tirelessly deliver for customers under challenging and unique circumstances.” We are seeing significant financial impact from the current labor climate. We are investing in the resources and capacities to provide service for peak season.
What impact did the poor labor market and inefficiencies on FedEx’s first quarter operating results have on them compared to last year? The company report that accompanied Fiscal Q1 financial reports revealed that FedEx’s first-quarter operating results dropped by $450 millions.
FedEx isn’t the only one citing supply chain disruptions and labor shortages as negative factors in its business. D.R. Horton and Lennar (NYSE:) mentioned similar problems in failing to meet Wall Street’s expectations of home deliveries.
I’m neutral about 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.
But rapid growth was accompanied by rising costs. This is made worse by network and labor shortages.
FedEx announced an increase of 5.90% in shipping rates across its most services to address the problem. This is the first significant hike in shipping rates for ten years. The company is under pressure from its customers to either raise prices or look for other shipping options. They aren’t many. It is a monopoly industry, with UPS (UPS), U.S. Postal Services, FedEx and UPS (U.S. Postal Services) make up the industry. This allows each company to have a large amount of pricing power. Thus, price hikes could solve FedEx’s problem.
Wall Street’s Take
Wall Street saw FedEx’s woes coming. Its shares lost 2.9% YTD in comparison to UPS’s 12.67% gain and the 15.92% gain in UPS. Wall Street seems to not believe that price increases will fix these problems, sending the shares of FedEx down close to 5 per cent in after-hours trading on Tuesday afternoon.
FedEx has a broad analyst following, which does not seem to share Wall Street’s gloom and doom. Analysts consider the shares of FedEx a Strong Buy. The average FedEx price target is $342.11 with high and low forecasts. Average price targets represent a 37.7% difference from $252.07.
According to analysts, FedEx’s troubles are temporary. Once the pandemic ends, labor shortages, network inefficiencies, and price increases take effect, things will get back on track.
They are likely to be correct.
Disclosure: Panos Mourdoukoutas held a position at FedEx and UPS as of the publication.
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