FedEx (NYSE:FDX) trades lower after pointing to costs from a constrained labor market in FQ1 and setting profit guidance below expectations.
Operating income fell to $1.49B during the quarter vs. $1.64B a year ago and the company reported an operating margin rate of 6.8% vs. 8.2% a year ago and 8.5% consensus.
Digging into the quarter, the company says operating results in the FedEx Ground segment declined primarily due to higher labor costs and network inefficiencies due to inadequate staffing, which negatively affected year-over-year results by an estimated $320M. Operating results were also negatively impacted by higher expansion-related costs. Operating results in the FedEx Freight segment improved primarily due to the continued focus on revenue quality and cost management.
Looking ahead, FedEx sees EPS of $19.75 to $21.00 before the MTM retirement plan accounting adjustments and excluding estimated TNT Express integration expenses and costs associated with business realignment activities. That forecast is below the prior view from FedEx (FDX) for EPS of $20.50 to $21.50.
Shares of FedEx are down 2.80% AH to $245.01. UPS is down 1.49%.
The FedEx conference call is likely to delve further into the cost inflation and how much of that will be covered by the rate hikes announced for next year.