MARKET REPORT: FedEx delivers a blow to UK packaging giants
MARKET REPORT: FedEx slaps UK packaging giants as it warns businesses hit by weak demand and rising costs
Paper and packaging companies plunged into the red after a US package giant warned its business was hit by weaker demand and rising costs.
FedEx’s revenue of £71 billion in the year to the end of May fell well short of analyst estimates.
The group, which also said it was hit by a global downturn in shipping, warned that sales for 2024 were likely to remain flat.
Raj Subramaniam, who took over as president and CEO of FedEx a year ago, said in April the company will consolidate its courier services and ground delivery units to save £3.14 billion by the end of 2025.
The group has also cut flights, grounded older aircraft and reduced staff.
Falling demand: FedEx said it has been hit by a global downturn in shipping and warned sales would likely remain flat for 2024. This led to a sell-out of paper and packaging companies
FedEx’s bleak outlook led to a sell-off in London, with Smurfit Kappa falling 5.5 per cent or 154 pence to 2664 pence, Mondi down 3.3 per cent or 41 pence to 1198 pence and DS Smith down 6 per cent or 18.4 pence pence to 290.2 pence. P.
Danni Hewson, head of financial analysis at AJ Bell, said: “Typically viewed as an economic gauge, the logistics group has signaled continued weakness in demand, which has pressured the company to find more ways to cut costs.
“A slump in post-pandemic e-commerce activity certainly hurts, as does the higher cost of borrowing, which is making businesses and consumers think more carefully about what they spend money on.”
The FTSE 100 fell 0.1 percent, or 10.13 points, to 7559.18 and the FTSE 250 fell 0.9 percent, or 174.71 points, to 18571.45.
Inflation in the UK remained stubbornly high at 8.7% in May – the same as the previous month – and higher than the 8.4% economists had expected.
That set the tone for tomorrow’s expected rate hike from 4.5 percent to 4.75 percent by the Bank of England.
Some in the town believe officials on Threadneedle Street could go even further and raise rates to 5 per cent.
Stock watch – Tekmar
Shares in Tekmar rose 23 percent, or 2.13 pence, to 11.38 pence, as it sought a return to profit.
The company, which makes coatings for submarine power cables for wind turbines, cut its losses to £600,000 in the six months to the end of March.
It posted a loss of £1.8 million in the same period a year ago.
The company raised new funds in April and now expects to break even by the end of the financial year in September, before returning to profit 12 months later.
Victoria Scholar, head of investment at Interactive Investor, said: “Britain is saddled with the highest inflation rate in the developing world as a tight labor market with labor shortages and strong wage increases add to operating costs, which are passed on to consumers in conditions for higher prices.
Prime Minister Rishi Sunak’s goal of halving inflation by the end of the year is starting to look less likely.
“As we approach mid-2023, inflation would ideally be closer to 7.5 percent to put him on track to meet his goal of bringing inflation back to about 5 percent by the end of the year, but the inflation remains closer to 9 percent.’
Rathbones fell 3.8 percent, or 74 pence, to 1,894 pence after Barclays downgraded the asset manager’s rating from equal-weight to underweight and cut its price target from 2,050 pence to 1,950 pence.
Shares of Sondrel rose 0.8 percent, or 0.5 pence, to 67 pence after Sarasin & Partners LLP increased its stake in the semiconductor chip designer and supplier from 4.16 percent to 5.08 percent.
Liontrust Asset Management traded lower after net outflows from its funds hit a record £4.8bn for the year to the end of March as clients moved their money out.
The company, which picked up Swiss rival GAM for £93 million last month, also saw its assets under management and advisory fall 6 percent to £31.4 billion, while profits fell 38 percent to £49.3 million. Shares fell 2.1 percent, or 16 pence, to 752.5 pence.
Miner Anglo American shares took a hit after its diamond arm De Beers said it likely sold about £353 million worth of rough diamonds between June 5 and June 20.
It said it would fall short of the £375 million in sales it achieved in the previous sales cycle and £157 million less than the same period a year ago. Anglo dropped 2 percent, or 48.5p, to 2336p.