FedEx Drops as Stepped-Up Spending Plan Signals Profit Risk

(Bloomberg) -- FedEx Corp. fell as a plan to bolster investment signaled potential pressure on the company’s profit.

Capital spending will total $7.2 billion during fiscal year 2022, which ends on May 31, FedEx said in a statement Thursday. The increase from last year’s investment of less than $6 billion looms as a threat to profit margins.

FedEx is trying to build on a banner year after the pandemic drove more people to shop online instead of buying in stores, spurring demand for home package deliveries. But shipments to homes tend to be less profitable than commercial deliveries, and FedEx has been investing in efficiency in a bid to safeguard earnings.

The shares fell 3.8% to $292.25 after the close of regular trading in New York. FedEx climbed 17% this year through the close while an S&P index of U.S. industrial companies advanced 15%. United Parcel Service Inc. gained 22% during the same period.

Amid the surge of packages and aggressive price increases, both FedEx and UPS have struggled to live up to investors’ high expectations for profit growth. UPS shares fell the most in seven months on June 9 when Chief Executive Officer Carol Tome’s financial forecast disappointed shareholders.

FedEx predicted adjusted earnings of $20.50 to $21.50 a share for fiscal year 2022. Analysts had predicted $20.48, according to the average of estimates compiled by Bloomberg -- a number that had already risen a dollar a share since mid-April on optimism that hefty demand would continue even as the pandemic eases.

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