Cyberattack Lowers Results
FedEx Corp. (NYSE: FDX) today reported earnings of $2.19 per
diluted share ($2.51 per diluted share on an adjusted basis) for
the first quarter ended August 31, compared to earnings of $2.65
per diluted share ($2.82 per diluted share on an adjusted basis) a
year ago. Both as-reported and adjusted earnings reflect the
estimated negative impact of the June 27 cyberattack affecting TNT
Express ($0.79 per diluted share) and Hurricane Harvey ($0.02 per
diluted share).
This year’s and last year’s quarterly consolidated earnings have
been adjusted for:
Impact per diluted share
First Quarter
Fiscal 2018 Fiscal
2017 TNT Express integration expenses $0.30 $0.17 FedEx
Trade Networks legal matters 0.02 —
“The first quarter posed significant operational challenges due
to the TNT Express cyberattack and Hurricane Harvey, and I want to
thank our team members for their extraordinary dedication and
performance,” said Frederick W. Smith, FedEx Corp. chairman and
chief executive officer. “We are confident of our prospects for
long-term profitable growth, and we reaffirm our commitment to
improve operating income at the FedEx Express segment by $1.2
billion to $1.5 billion in fiscal 2020 versus fiscal 2017.”
First Quarter Results
FedEx Corp. reported the following consolidated results for the
first quarter (adjusted measures exclude the items listed above for
the applicable fiscal year):
Fiscal 2018
Fiscal 2017
As Reported(GAAP)
Adjusted(non-GAAP)
As Reported(GAAP)
Adjusted(non-GAAP)
Revenue $15.3 billion $15.3 billion $14.7 billion $14.7 billion
Operating income $1.12 billion $1.24 billion $1.26 billion $1.33
billion Operating margin 7.3% 8.1% 8.6% 9.1% Net income $596
million $683 million $715 million $760 million Diluted EPS $2.19
$2.51 $2.65 $2.82
Financial results during the quarter benefited from higher base
rates at each of our transportation segments, which was more than
offset by reduced revenue and increased expenses resulting from the
TNT Express cyberattack, TNT Express integration expenses, higher
costs at FedEx Ground, a higher tax rate, and the impact from
Hurricane Harvey. Results also benefited from lower incentive
compensation accruals.
The worldwide operations of TNT Express were significantly
affected during the first quarter by the June 27 NotPetya
cyberattack. Most TNT Express services resumed during the quarter
and substantially all TNT Express critical operational systems have
been restored. However, TNT Express volume, revenue and profit
still remain below previous levels.
Outlook
FedEx is unable to forecast the fiscal 2018 year-end
mark-to-market (MTM) pension accounting adjustments. As a result,
the company is unable to provide fiscal 2018 earnings guidance on a
GAAP basis.
The company is lowering its fiscal 2018 forecast due to the
estimated full-year impacts of the TNT Express cyberattack. Before
year-end MTM pension accounting adjustments, earnings are now
projected to be $11.05 to $11.85 per diluted share for fiscal 2018.
The earnings forecast before year-end MTM pension accounting
adjustments and excluding expenses related to TNT Express
integration and certain first quarter FedEx Trade Networks legal
matters is now $12.00 to $12.80 per diluted share for fiscal 2018.
These forecasts assume moderate economic growth and continued
recovery from the cyberattack.
The capital spending forecast for fiscal 2018 remains $5.9
billion.
“The impact of the cyberattack on TNT Express and
lower-than-expected results at FedEx Ground reduced our first
quarter earnings,” said Alan B. Graf, Jr., FedEx Corp. executive
vice president and chief financial officer.
“We are currently executing plans to mitigate the full-year
impact of these issues.”
2018 Rate Increases
As previously announced, effective January 1, 2018, FedEx
Express, FedEx Ground and FedEx Freight will increase shipping
rates by an average of 4.9%. Effective January 22, 2018,
dimensional weight pricing will apply to FedEx SmartPost shipments.
Details related to these and additional changes to rates and
surcharges are available at fedex.com/rates2018.
FedEx Express Segment
For the first quarter, the FedEx Express segment (which includes
TNT Express) reported (adjusted measures exclude TNT Express
integration expenses):
Fiscal 2018
Fiscal 2017
As Reported(GAAP)
Adjusted(non-GAAP)
As Reported(GAAP)
Adjusted(non-GAAP)
Revenue $8.65 billion $8.65 billion $8.46 billion $8.46 billion
Operating income $433 million $521 million $610 million $652
million Operating margin 5.0% 6.0% 7.2% 7.7%
Revenue grew primarily due to higher U.S. domestic package base
rates and strong international package growth, partially offset by
the impact from the TNT Express cyberattack.
Operating results declined due to an estimated $300 million
impact from the cyberattack, which was partially offset by the
benefits from revenue growth, lower incentive compensation accruals
and ongoing cost management initiatives. As-reported results
include $88 million of TNT Express integration expenses.
FedEx Ground Segment
For the first quarter, the FedEx Ground segment reported:
Fiscal
2018 Fiscal 2017
Change Revenue $4.64 billion
$4.29 billion 8% Operating income $626 million $610 million 3%
Operating margin 13.5% 14.2% (0.7 pts)
Revenue increased primarily due to average daily package volume
growth of 4% and higher commercial service base rates.
Operating income grew 3% due to revenue growth and lower
incentive compensation accruals, which offset continued network
expansion and staffing costs, higher purchased transportation
expenses and increased self-insurance reserves.
FedEx Freight Segment
For the first quarter, the FedEx Freight segment reported:
Fiscal
2018 Fiscal 2017
Change Revenue $1.75 billion
$1.66 billion 6% Operating income $176 million $135 million 30%
Operating margin 10.0% 8.1% 1.9 pts
Revenue increased primarily due to higher base rates, increased
weight per shipment and higher fuel surcharges. Average daily
less-than-truckload (LTL) shipments grew 1% as the company
continues its focus on revenue quality.
Operating results improved primarily due to the benefit from
higher LTL revenue per shipment.
Corporate Overview
FedEx Corp. (NYSE: FDX) provides customers and businesses
worldwide with a broad portfolio of transportation, e-commerce and
business services. With annual revenues of $61 billion, the company
offers integrated business applications through operating companies
competing collectively and managed collaboratively, under the
respected FedEx brand. Consistently ranked among the world’s most
admired and trusted employers, FedEx inspires its more than 400,000
team members to remain “absolutely, positively” focused on safety,
the highest ethical and professional standards and the needs of
their customers and communities. To learn more about how FedEx
connects people and possibilities around the world, please visit
about.fedex.com.
Additional information and operating data are contained in the
company’s annual report, Form 10-K, Form 10-Qs, Form 8-Ks,
Statistical Books and first quarter fiscal 2018 Earnings
Presentation. These materials, as well as a webcast of the earnings
release conference call to be held at 5:00 p.m. EDT on September
19, are available on the company’s website at investors.fedex.com.
A replay of the conference call webcast will be posted on our
website following the call.
The Investor Relations page of our website, investors.fedex.com,
contains a significant amount of information about FedEx, including
our Securities and Exchange Commission (“SEC”) filings and
financial and other information for investors. The information that
we post on our Investor Relations website could be deemed to be
material information. We encourage investors, the media and others
interested in the company to visit this website from time to time,
as information is updated and new information is posted.
Certain statements in this press release may be considered
forward-looking statements, such as statements relating to
management’s views with respect to future events and financial
performance. Such forward-looking statements are subject to risks,
uncertainties and other factors which could cause actual results to
differ materially from historical experience or from future results
expressed or implied by such forward-looking statements. Potential
risks and uncertainties include, but are not limited to, economic
conditions in the global markets in which we operate, a significant
data breach or other disruption to our technology infrastructure,
the ongoing impact of the June 27 cyberattack affecting TNT
Express, our ability to successfully integrate the businesses and
operations of FedEx Express and TNT Express in the expected time
frame, changes in fuel prices or currency exchange rates, our
ability to match capacity to shifting volume levels, new U.S.
domestic or international government regulation, our ability to
effectively operate, integrate and leverage acquired businesses,
our ability to achieve our FedEx Express segment profit improvement
goal, legal challenges or changes related to owner-operators
engaged by FedEx Ground and the drivers providing services on their
behalf, disruptions or modifications in service by, or changes in
the business or financial soundness of, the U.S. Postal Service,
the impact from any terrorist activities or international conflicts
and other factors which can be found in FedEx Corp.’s and its
subsidiaries’ press releases and FedEx Corp.’s filings with the
SEC. Any forward-looking statement speaks only as of the date on
which it is made. We do not undertake or assume any obligation to
update or revise any forward-looking statement, whether as a result
of new information, future events or otherwise.
The financial section of this release is provided on the
company’s website at investors.fedex.com.
RECONCILIATIONS OF NON-GAAP FINANCIAL
MEASURES
TO GAAP FINANCIAL MEASURES
First Quarter Fiscal 2018 and Fiscal
2017 Results
The company reports its financial results in accordance with
accounting principles generally accepted in the United States
(“GAAP” or “reported”). We have supplemented the reporting of our
financial information determined in accordance with GAAP with
certain non-GAAP (or “adjusted”) financial measures, including our
adjusted first quarter fiscal 2018 and 2017 consolidated operating
income and margin, net income and diluted earnings per share, and
adjusted first quarter fiscal 2018 and 2017 FedEx Express segment
operating income and margin. These financial measures have been
adjusted to exclude the impact of the following items (as
applicable):
- TNT Express integration expenses;
and
- Charges related to certain pending U.S.
Customs and Border Protection matters involving FedEx Trade
Networks.
We expect to incur significant expenses over the next few years
in connection with our integration of TNT Express. We have adjusted
our first quarter fiscal 2018 and 2017 financial measures and the
FedEx Express segment first quarter fiscal 2018 and 2017 financial
measures to exclude these items because we generally would not
incur such expenses as part of our continuing operations. The
integration expenses are predominantly incremental costs directly
associated with the integration of TNT Express, including
professional and legal fees, salaries and wages, advertising
expenses and travel. Internal salaries and wages are included only
to the extent the individuals are assigned full-time to integration
activities.
Charges related to certain FedEx Trade Networks legal matters
are excluded from our first quarter fiscal 2018 non-GAAP financial
measures because they are unrelated to our core operating
performance and to assist investors with assessing trends in our
underlying business.
We believe these adjusted financial measures facilitate analysis
and comparisons of our ongoing business operations because they
exclude items that may not be indicative of, or are unrelated to,
the company’s and our business segments’ core operating
performance, and may assist investors with comparisons to prior
periods and assessing trends in our underlying businesses. These
adjustments are consistent with how management views our
businesses. Management uses these non-GAAP financial measures in
making financial, operating and planning decisions and evaluating
the company’s and each business segment’s ongoing performance.
Our non-GAAP measures are intended to supplement and should be
read together with, and are not an alternative or substitute for,
and should not be considered superior to, our reported financial
results. Accordingly, users of our financial statements should not
place undue reliance on these non-GAAP financial measures. Because
non-GAAP financial measures are not standardized, it may not be
possible to compare these financial measures with other companies’
non-GAAP financial measures having the same or similar names. As
required by SEC rules, the tables below present a reconciliation of
our presented non-GAAP financial measures to the most directly
comparable GAAP measures.
Fiscal 2018 Earnings
Guidance
Our fiscal 2018 earnings guidance is a non-GAAP financial
measure because it excludes the fiscal 2018 year-end MTM pension
accounting adjustments, charges related to certain first quarter
FedEx Trade Networks legal matters and projected fiscal 2018 TNT
Express integration expenses, including any restructuring charges
at TNT Express. We have provided this non-GAAP earnings guidance
measure for the same reasons that were outlined above for
historical non-GAAP measures.
We are unable to predict the amount of the year-end MTM pension
accounting adjustments, as they are significantly impacted by
changes in interest rates and the financial markets, so such
adjustments are not included in our earnings guidance. For this
reason, a full reconciliation of our fiscal 2018 earnings guidance
to the most directly comparable GAAP measure is impracticable. It
is reasonably possible, however, that our fourth quarter fiscal
2018 MTM pension accounting adjustments could have a material
impact on our fiscal 2018 consolidated financial results. The last
table included below outlines the impact of the items that are
excluded from our earnings guidance, other than the year-end MTM
pension accounting adjustments.
First Quarter
Fiscal 2018
FedEx
Corporation
Dollars in millions, except EPS
Diluted
Operating
Income
Net
Earnings
Income
Margin
Taxes1
Income2
Per Share
GAAP measure
$1,117
7.3%
$386
$596
$2.19
TNT Express integration expenses3
112
0.7%
30
82
0.30
FedEx Trade Networks legal matters
7
0.1%
2
5
0.02
Non-GAAP measure
$1,236
8.1%
$418
$683
$2.51
FedEx Express
Segment
Dollars in millions
Operating
Income
Margin
GAAP measure $433 5.0% TNT Express integration
expenses
88 1.0% Non-GAAP measure $521
6.0%
First Quarter
Fiscal 2017
FedEx
Corporation
Dollars in millions, except EPS
Diluted
Operating
Income
Net
Earnings
Income
Margin
Taxes1
Income2
Per Share
GAAP measure $1,264 8.6% $427
$715 $2.65 TNT Express integration expenses3
68
0.5%
23
45
0.17
Non-GAAP measure $1,332 9.1% $450 $760 $2.82
FedEx Express
Segment
Dollars in millions
Operating
Income
Margin
GAAP measure $610 7.2% TNT Express integration
expenses
42 0.5% Non-GAAP measure $652
7.7%
Fiscal 2018
Earnings Outlook
Dollars in millions, except EPS
Adjustments
Diluted EarningsPer Share
Earnings per diluted share before MTM
pension accounting adjustments (non-GAAP)4
$11.05 to $11.85
TNT Express integration expenses $ 350
Income tax effect1
(98 ) Net of tax effect $ 252 0.93 FedEx Trade
Networks legal matters $ 7
Income tax effect1
(2 ) Net of tax effect $ 5 0.02 Earnings per diluted
share with adjustments4
$12.00 to $12.80
Notes: 1 – Income taxes are based on
the company’s approximate statutory tax rates applicable to each
transaction. 2 – Effect of “Total other (expense) income” on net
income amount not shown. 3 – These expenses were recognized at
FedEx Corporate and FedEx Express. 4 – The year-end MTM pension
accounting adjustments, which are impracticable to calculate at
this time, are excluded.
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version on businesswire.com: http://www.businesswire.com/news/home/20170919006564/en/
FedEx Corp.Media Contact:Jess Bunn, 901-818-7463orInvestor
Contact:Mickey Foster, 901-818-7468Home Page: fedex.com
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