FedEx (FDX -22.44%) is out with a grim warning about the economy and dramatically scaled back expectations for its current fiscal year. Investors are worried about what the outlook means for FedEx archrival United Parcel Service (UPS -4.32%), sending UPS shares down as much as 6% on Friday morning.
It has been an interesting few years for shipping companies. UPS and FedEx saw demand for home deliveries soar during the pandemic, and the post-pandemic international supply chain bottlenecks created a lot of demand for their corporate delivery services. But more recently macro conditions have turned against these companies: Soaring inflation and a fall-off in demand in certain parts of the world have led some to worry that earnings are set to decline in the quarters to come.
Late Thursday, FedEx provided evidence that those fears are justified. UPS’s archrival warned that earnings would fall well below expectations, and withdrew guidance for its full fiscal year. The issue, as expected, was a decline in global volumes.
UPS is not FedEx, but the parallels are clear. If FedEx is suddenly having trouble filling its trucks and airplanes, it seems likely that UPS is also going to see demand for its services fall. Investors are selling UPS shares assuming that if one giant shipping company is seeing tough times ahead, the rest of the industry is likely seeing the same thing.
UPS and FedEx are the big names in shipping, and on a day when FedEx shares are down more than 20% it is no surprise that UPS is taking a hit. But it is important to note that UPS reiterated guidance for the current quarter earlier this week, which would suggest management is not seeing a dramatic dropoff in demand.
Investors will know more in late October, when UPS is scheduled to release third-quarter results. It seems inevitable that UPS will feel some impact from the global storm that capsized FedEx, but for long-term-focused investors willing to ride out this downturn this drop on the FedEx news could be a buying opportunity.