FedEx warns of a global recession, cutting sales forecast by half a billion dollars
(CNN) -- FedEx warned that a global recession could be coming, as demand for packages around the world falls.
The company's stock plunged 21% in premarket trading Friday after it warned late Thursday that a slowing economy will cause it to fall $500 million short of its revenue target. The weakening global economy, particularly in Asia and Europe has hurt FedEx's express delivery business. The company said demand for packages weakened in the final weeks of the quarter.
The company said it is responding by reducing flights and temporarily parking aircraft, trimming hours for its staff, delaying some hiring plans and closing 90 FedEx Office locations as well as five corporate offices.
FedEx said its adjusted earnings for the quarter that ended August 31 will be down $260 million, or 17%, from a year earlier. Revenue rose $1.2 billion, or 5%, despite missing the company's earlier target.
FedEx Ground service, which is the primary way the company handles deliveries of online purchases made by US consumers, missed its sales target by $300 million.
The company uses independent contractors, not employees, to make deliveries, and many of those contractors are complaining that rising costs for fuel, labor and new vehicles has made their business unprofitable. Some are threatening to halt operations on Black Friday, just at the start of the holiday shopping season, unless FedEx agrees to change their compensation.
FedEx insists it will work with contractors who are having problems. It has sued the former contractor who has been the most vocal critic of the company.
"We recognize that current economic conditions are posing new challenges," FedEx Ground said in a statement last month. "We remain committed to working with service provider businesses individually to address the challenges specific to their situation. Our goal is to enable success for both FedEx Ground and service providers."
About 1,000 of the 6,000 contractors who work for FedEx have joined a trade association to lobby the company for better compensation.
A survey conducted by the association released this week found 54% saying their business with FedEx was losing money, 35% saying it was breaking even, and only 11% saying it was profitable. The association said the survey reached 1,200 contractors working for the company or who left the company within the last 12 months.
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