Essentially, the government is charging FedEx as a drug trafficker, although no specific company executives or employees have been indicted. FedEx is flatly denying any wrongdoing and is vowing to hotly contest the issue in court, unlike UPS, which paid $40 million in a settlement in a similar dispute with the feds.
What it all means for FedEx investors
If FedEx is convicted on the Justice Department’s charges, then the company would have to pony up big time. FedEx would be responsible for paying a whopping $1.6 billion fine, almost twice as much as the $820 million the feds say FedEx made off of illicit drug operations. To put this number in perspective, FedEx reported $11.6 billion of revenue and $730 million in net income in the fourth quarter of fiscal 2014.
So, if FedEx does lose its case in court, the company may take a relatively big hit in the short term, which would hurt the company’s bottom line. Investors may be spooked from the stock as well, driving down confidence in the brand.