FedEx says it will 'start lapping' Amazon in 2021

Key Points
  • FedEx says continued investments in seven-day delivery should help it "lap" Amazon in 2021.
  • The comments come after FedEx reported disappointing fiscal second-quarter results and lowered its full-year earnings outlook for 2020.
  • Earlier this week, Amazon announced it will temporarily prevent sellers from using FedEx's ground-delivery service for Prime orders.
A bicyclist rides past a FedEx Corp. delivery truck in Miami, Florida.

FedEx's rocky relationship with Amazon may have contributed to its fiscal second-quarter earnings slump, but the shipping company says it could actually turn a corner and outpace its competitor in fiscal 2021.

"If you think about all the positive things we've said and that we're seeing, as we get into 2021, we will start lapping Amazon," FedEx CFO Alan B. Graf Jr. said on the company's earnings call Tuesday evening. "Without giving you specifics, we're at the bottom, and we're going to come up off the mat and we're going to improve through the rest of this year and into the next."

FedEx has spent heavily to expand its ground-delivery service to run seven days a week all year. Graf said those investments, along with "operational synergies" in Europe, will start to pay off in the company's fiscal 2021.

FedEx CEO called Q2 2020 earnings an 'anomaly'
FedEx CEO called Q2 2020 earnings an 'anomaly'

Earlier Tuesday, FedEx reported weaker-than-expected fiscal second-quarter results and lowered its full-year earnings outlook for 2020. Shares of FedEx slid 10% on Wednesday. The company has lost just over 4 billion in market value since Tuesday's close and the stock is down about 9% year to date.

The company blamed the disappointing quarterly results on weak global economic conditions, rising costs associated with ground-delivery expansion, online holiday sales shifting to the third quarter and the "loss of business from a large customer," which Graf later confirmed was Amazon.

"The loss of volume from Amazon had a larger negative impact to the second quarter than the first quarter since the FedEx ground contract with Amazon expired in August," Graf said on the call.

FedEx announced plans in August to end its ground-delivery contract with Amazon, It halted its express U.S. shipping contract with Amazon in June. Earlier this week, Amazon fired back by announcing it will temporarily prevent third-party sellers, which make up 58% of its total merchandise sales, from using FedEx's ground and home delivery services for Prime orders.

Amazon said it made the decision based on FedEx's poor delivery performance and to make sure shoppers would receive their packages in time for Christmas. The company didn't indicate when it would resume the service.

Who makes Amazon shipping boxes
Who makes Amazon shipping boxes

For sellers, the move threatens to throw many of their businesses into a tailspin during the busiest shopping period of the year. Sellers were forced to find a new carrier and could potentially face higher upfront costs as a result.

The spat between Amazon and FedEx has heated up significantly in the past year. In September, FedEx started mentioning Amazon as a competitor, after denying the company posed a threat. Amazon has gradually distanced itself from FedEx and UPS by building up its own delivery network.