FedEx Cut Its Outlook Again. Should Investors Worry?

FedEx (NYSE: FDX) stock dropped more than 6% on Friday. This came after the company released earnings Thursday afternoon. In the report, the company slashed its full-year profit and revenue guidance -- a sign that its hoped-for recovery is failing to materialize anytime soon.

The parcel delivery giant now expects adjusted earnings per share for fiscal 2025 to fall between $18 and $18.60. That's down from the already revised guidance of $19 to $20 issued just a few months ago in December, and far below the original target range of $20 to $22. Additionally, FedEx said revenue for the year ending in May will likely be flat or slightly down year over year -- a downgrade from its earlier forecast that called for flat revenue.

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Times are tough for FedEx, to say the least. Due to the company's ties to the overall economy, this is both a sign of caution for FedEx itself and many other U.S. businesses with close ties to the industrial and business-to-business space.

Economic headwinds and tariff fears

So what's going wrong?

"Our revised earnings outlook reflects continued weakness and uncertainty in the U.S. industrial economy, which is constraining demand for our business-to-business services," FedEx chief financial officer John Dietrich said in the company's fiscal third-quarter earnings report.

This is no small issue for FedEx. The industrial economy is a key driver of profitable, high-volume shipments between businesses. Unfortunately, however, that segment has struggled while lower-margin e-commerce demand continues to dominate shipping activity. Management said during FedEx's earnings call that 90% of its incremental parcel growth is coming from e-commerce, prompting management to explore ways it can serve the key market more profitably.

In the company's fiscal third-quarter earnings release, FedEx CEO Raj Subramaniam pointed to a "very challenging operating environment," citing a compressed holiday peak season and extreme weather events that disrupted logistics during the third quarter of fiscal 2025.

Adding to the uncertainty are new and proposed tariffs from the Trump administration, which have raised fears of a renewed trade war. That could put further pressure on U.S. manufacturers -- and by extension, shipping demand. These negative external forces, of course, played a role in management lowering its outlook for fiscal 2025 revenue and profitability.

Some bright spots (but not enough)

FedEx's fiscal third-quarter results actually weren't too bad. Adjusted earnings came in at $4.51 per share, up from $3.86 in the same quarter last year. Notably, though, the adjusted EPS figure did come in a few cents below analysts' average forecast. But that's not a huge miss for a stock whose valuation already prices in a challenging operating environment (shares trade at just 15 times earnings).

Another reason for investors to cheer is the shipping company's aggressive stock buyback program -- a clear signal of management's confidence in its long-term transformation plan. Management said in the company's fiscal third-quarter earnings call that, with the help of $500 million of repurchases during the quarter, its fiscal year-to-date repurchases are $2.5 billion.

Finally, FedEx is still moving forward with efforts to improve profitability long term. FedEx reaffirmed its goal of achieving permanent cost reductions of $2.2 billion in fiscal 2025. These efforts should help bolster profitability in the coming years.

But even if FedEx executes well, external headwinds are unavoidable. FedEx is struggling with soft business demand, rising competitive pressure, and an uncertain economic environment. Sure, FedEx certainly isn't in a crisis; these are all challenges the company can work through. But with momentum stalling and management slashing guidance habitually in recent quarters, investors have good reason to be cautious -- not just about FedEx stock, but the overall economy.

Often considered a bellwether for the overall economy, weakness at FedEx could spell trouble for the U.S. economy -- or at least be a reason for investors to keep a closer eye on economic activity.

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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends FedEx. The Motley Fool has a disclosure policy.