While the S&P 500 rose nearly 29% in 2019, in a market of stocks not all stocks beat the average. Some even severely lag the broader stock market gains. After closing out 2019 at $151.21, FedEx closed out nearly 5% lower for the entire year after adjusting for dividends. It turns out that FedEx's stock chart had been posting a series of lower highs starting in 2018, but the real culprit that seemed to plague the shares before and after its earnings calls was the loss of business from Amazon.com, Inc. (NASDAQ: AMZN).
While Amazon is one of those customers that is so big no business really wants to lose them as a customer, Amazon has been crafty over the years in getting its way. Now it seems that the FedEx may be out of the penalty box.
FedEx shares rose on Tuesday after news broke that Amazon had notified its army of third-party merchants that they could again start using FedEx Ground shipments to customers ordering within the Amazon Prime member program. FedEx had been a shipping partner for years, and the move appears to have lightened up some of the strife after FedEx had been cut-off during much of the Christmas and holiday shopping season and for a couple weeks after that.
The ban being lifted for third-party merchants is the FedEx Ground and Home service, and sellers had been able to use FedEx Express shipping or FedEx Ground and Home for purchases that were not made within the Amazon Prime service.
It remains to be seen how long the move will will last or whether Amazon will keep the status quo going forward. Amazon has already committed over $1 billion to a 50-plane air shipping hub in Kentucky, but that is currently not slated to open until some time in 2021. Needless to say, the company's effort to in-house that shipping business away from FedEx and United Parcel Service Inc. (NYSE: UPS) is one more step that may remove profits that Amazon would have to consider as its own cost.
FedEx last reported earnings for its fiscal second quarter on December 17, 2019 and the quarterly revenues for the quarter, which did not even represent the full impact of the Amazon holiday shipping ban under the Prime program. Its quarterly revenues of $17.3 billion were roughly a half-billion dollars shy of the prior year.
Even then, FedEx blamed weak global economic conditions, higher FedEx Ground costs from expanded service offerings, the loss of business from "a large customer," a shorter season due to Cyber Week's timing, an ongoing shift to lower-yielding services and a more competitive pricing environment. Frederick Smith, FedEx Chairman and CEO, said at that time:
It is unclear whether this new news will help FedEx in its guidance for 2020 or not. The comments about guidance back in December said:
FedEx shares closed up almost 1.8% at $162.13 on Tuesday, but that is down from a 52-week high of $199.32 and versus a 2018 high of about $262.00.