02:45 PM EDT, 08/16/2024 (MT Newswires) -- FedEx's ( FDX ) fiscal first-quarter earnings could take a hit from "soft" parcel demand and a competitive pricing backdrop, UBS Securities said Friday.

The parcel delivery company is scheduled to report first-quarter results Sept. 19. UBS cut its earnings outlook to $4.70 a share from $5.20, compared with Wall Street's $5.02 view. The downgrade reflects a competitive pricing environment, "generally soft" parcel market volumes, and trade downs, UBS analysts, including Thomas Wadewitz, said in a note to clients.

The pressures were visible in rival United Parcel Service's ( UPS ) second-quarter financial results, with other companies' "mixed" remarks on freight market trends also reflecting the same, the analysts said.

Last month, UPS tempered its full-year revenue outlook as it expects US customers to continue trading down between its services.

FedEx ( FDX ) faces several headwinds in fiscal 2025, including fewer days, the loss of US Postal Service contract and lower international yields, UBS said. These challenges may result in a different-than-normal seasonal pattern in upcoming earnings even as the company's comments indicated a "normal" seasonal first quarter when it reported its fourth-quarter results in June, according to the note.

FedEx ( FDX ) faces "significant" tailwinds from its DRIVE cost-savings program, UBS said. The company aims to consolidate its operating companies into a single, integrated air-ground network under the initiative.

"We also expect support for the stock from (FedEx's ( FDX )) review of the freight business and a potential spin off," the analysts said. In June, the company said it would evaluate its freight business, with the review expected to be completed by the end of the calendar year.

FedEx's ( FDX ) recently announced new peak season surcharges are "broadly similar" to those set by UPS, UBS said. "While there are competitive pressures in the domestic parcel market, (FedEx's ( FDX )) move to implement demand surcharges is a positive and it shows a rational market dynamic," the analysts wrote.

UBS has a buy rating and a $333 price target on the FedEx ( FDX ) stock.

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