FedEx is signaling a major shift in consumer behavior that is impacting profits

FedEx (FEDEX) just revealed it faces some major “headwinds” as it struggles with a “softer demand environment” in the industrial economy as consumers tighten their spending.

In FedEx’s first-quarter 2024 earnings report, the shipping carrier revealed that it earned $21.6 billion in revenue during the quarter, down from the $21.7 billion it -he won in the same time period in 2023.

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The company also reported a roughly 23% year-over-year decline in its net income, while earning adjusted earnings per share of $3.60 during the quarter, down nearly 21% from of the $4.55 per share it earned in the same period a year earlier.

In the report, FedEx disclosed that its earnings were “adversely impacted by a shift in mix,” which includes “reduced demand for priority services” and “increased demand for deferred services.”

During a Sept. 19 earnings call that discussed the report, FedEx CEO Rajesh Subramaniam said the U.S. domestic package market faced “weaker” demand than previously expected as the company faced with a “slightly lower” average daily packet volume.

An independent contractor worker of FedEx Corp. delivers packages to San Francisco on August 3, 2023.

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“The weakness in the industrial economy has put pressure on our B2B (business-to-business) volumes, particularly in the US,” Subramaniam said on the call. “We have seen increasing demand for our low-yield services, and part of this increase in demand has been driven by a shift in customer preferences around the world from priority to deferred services.”

FedEx also revealed that it is adjusting its revenue expectations for fiscal 2025 after noticing the worrying shift in consumer behavior. It now predicts a “low-single-digit percentage revenue growth rate” year-over-year, compared to the “low-single-digit percentage growth rate” it previously expected.

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Shortly after FedEx released its latest earnings report, its stock fell about 15%.

FedEx faces challenges as small businesses struggle with inflation

The weakness in FedEx’s business-to-business shipping volumes and the preference for cheaper shipping options comes as small businesses grapple with inflation.

According to a recent survey by the National Federation of Independent Business, 25% of small business owners revealed that inflation is their “most important issue in operating their business.”

“Despite this increase in optimism, the road ahead remains difficult for small business owners across the country,” NFIB Chief Economist Bill Dunkelberg said in the report. “Cost pressures, particularly labor costs, continue to weigh on small business operations, impacting their bottom line. Owners are heading into the unpredictable months ahead, not knowing how future economic conditions or government policies will affect them.”

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