FedEx Corp. (NYSE: FDX) today reported the following
consolidated results for the third quarter ended February 28
(adjusted measures exclude the items listed below for the
applicable fiscal year):
Fiscal 2018
Fiscal 2017
As Reported
(GAAP)
Adjusted
(non-GAAP)
As Reported
(GAAP)
Adjusted
(non-GAAP)
Revenue $16.5 billion $16.5 billion $15.0 billion $15.0 billion
Operating income
$1.00 billion
$1.11 billion
$1.03 billion
$1.10 billion
Operating margin
6.1%
6.7%
6.8%
7.4%
Net income $2.07 billion $1.02 billion $562 million $625 million
Diluted EPS $7.59 $3.72 $2.07 $2.30
This year’s quarterly consolidated earnings have been adjusted
to exclude the benefit of an estimated $1.15 billion reduction in
the company’s net U.S. deferred tax liability attributable to the
lower statutory rate enacted as part of the Tax Cuts and Jobs Act
(TCJA). Additionally, this year’s and last year’s quarterly
consolidated earnings have been adjusted for TNT Express
integration expenses. The adjustments are as follows:
Impact per diluted share
Third Quarter
Fiscal 2018 Fiscal 2017 Net
U.S. deferred tax liability remeasurement
($4.21)
—
TNT Express integration expenses 0.34 0.23
“Execution of our long-term growth strategies, customer demand
for the unique value of our broad portfolio of solutions and
healthy growth in the global economy are driving our performance,”
said Frederick W. Smith, FedEx Corp. chairman and chief executive
officer. “We expect strong operating performance in each of our
transportation segments in the fourth quarter.”
Operating results benefited from higher base rates, increased
volume at FedEx Ground and FedEx Freight, and a favorable net
impact from fuel. Results were negatively affected by significantly
higher variable compensation accruals, increased peak-related costs
at FedEx Express and the impact of adverse weather. Variable
compensation increased in connection with the company’s pay actions
that were announced following the passage of the TCJA. These
variable compensation accruals include the year-to-date impact of
the announced changes. TNT Express integration expenses were also
higher.
Net results include a tax benefit of $1.53 billion ($5.60 per
diluted share) attributable to the TCJA, which has three primary
components:
- A provisional benefit of $1.15 billion
($4.21 per diluted share) from the remeasurement of the company’s
net U.S. deferred tax liability for lower tax rates;
- A benefit of approximately $200 million
($0.75 per diluted share) from an incremental pension contribution
made in February and deductible against the company’s prior year
taxes at 35%; and
- A benefit of approximately $170 million
($0.60 per diluted share) attributable to the phase-in of the
reduced tax rate applied to the company’s year-to-date
earnings.
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-per-share
guidance or projected fourth quarter fiscal 2018 consolidated
operating income or margin on a GAAP basis.
Before year-end MTM pension accounting adjustments, earnings are
now projected to be $17.90 to $18.30 per diluted share for fiscal
2018. The fiscal 2018 earnings forecast before year-end MTM pension
accounting adjustments and excluding the estimate of the
remeasurement of the company’s net U.S. deferred tax liability,
expenses related to TNT Express integration and certain first
quarter FedEx Trade Networks legal matters is now $15.00 to $15.40
per diluted share.
Before year-end MTM pension accounting adjustments, fourth
quarter fiscal 2018 consolidated operating income and margin are
projected to be $1.84 billion to $1.94 billion and 10.4% to 11.1%,
respectively. Excluding year-end MTM pension accounting adjustments
and TNT Express integration expenses, fourth quarter consolidated
operating income and margin are projected to be $1.95 billion to
$2.05 billion and 11.0% to 11.8%, respectively.
The projected fourth quarter fiscal 2018 operating margin for
each transportation segment is as follows (the adjusted operating
margin for the FedEx Express segment excludes TNT Express
integration expenses):
Projected Fourth Quarter
Operating Margin
As Reported
(GAAP)
Adjusted
(Non-GAAP)
FedEx Express segment 9.1% to 9.6% 9.9% to 10.4% FedEx Ground
segment 17.0% to 17.5% N/A FedEx Freight segment 8.0% to 9.0% N/A
These margin forecasts reflect the March 1, 2018 realignment of
the company’s specialty logistics and e-commerce solutions into a
new organizational structure within the FedEx Express segment. All
of the above forecasts assume moderate economic growth.
The capital spending forecast for fiscal 2018 is now $5.8
billion, down $100 million from the prior forecast.
“We are increasing our fiscal 2018 earnings outlook due to
foreign tax benefits from our international corporate structure,
the benefits from U.S. tax reform and improved operating
performance,” said Alan B. Graf, Jr., FedEx Corp. executive vice
president and chief financial officer. “We remain committed to
improving operating income at the FedEx Express segment by $1.2 to
$1.5 billion in fiscal 2020 versus fiscal 2017.”
FedEx Express Segment
For the third quarter, the FedEx Express segment 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 $9.37 billion $9.37 billion $8.57 billion $8.57 billion
Operating income $424 million $510 million $557 million $610
million Operating income YOY change %
(24%)
(16%)
Operating margin 4.5% 5.4% 6.5% 7.1%
Revenue increased due to improved base rates, currency exchange
rates and higher fuel surcharges, despite a lingering impact from
the June cyberattack affecting TNT Express. Total package volume
declined 1%, as lower international domestic and U.S. domestic
volumes offset international export package volume growth of 1%.
Average daily freight pounds increased 3% on higher volume in both
international and U.S. freight services.
As-reported results during the quarter were primarily affected
by the estimated impacts of:
- Higher variable compensation
accruals
- Increased peak-related costs
- Higher TNT Express integration
expenses
- Adverse weather
- Unfavorable currency exchange
rates
- Favorable net fuel
Combined, these six factors negatively affected the segment’s
year-over-year results by approximately $170 million.
FedEx Ground Segment
For the third quarter, the FedEx Ground segment reported:
Fiscal
2018 Fiscal 2017
Change Revenue $5.22 billion $4.69 billion 11%
Operating income $634 million $515 million 23% Operating margin
12.1% 11.0% 1.1 pts
Strong revenue growth was driven by average daily package volume
growth of 6% and higher base rates. During peak season, record
volume was delivered with exceptional service through FedEx
Ground’s highly automated and flexible network.
Operating results improved due to the benefits from strong
revenue growth and ongoing cost management, partially offset by
increased purchased transportation, seasonal staffing and network
expansion costs as well as higher variable compensation
accruals.
FedEx Freight Segment
For the third quarter, the FedEx Freight segment reported:
Fiscal
2018 Fiscal 2017
Change Revenue $1.69 billion $1.49 billion 14%
Operating income $55 million $41 million 34% Operating margin 3.2%
2.7% 0.5 pts
Revenue increased due to less-than truckload (LTL) revenue per
shipment growth of 8% and average daily LTL shipment growth of
6%.
Operating results improved primarily due to the benefit from
higher LTL revenue per shipment, partially offset by higher
variable compensation accruals.
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 $64 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 425,000
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 third 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 March 20,
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, 2017 cyberattack affecting TNT
Express, our ability to successfully integrate the businesses and
operations of FedEx Express and TNT Express in the expected time
frame or at the expected cost, 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,
future guidance and interpretations relating to the recently
enacted TCJA and our ability to realize the benefits of certain
provisions of the TCJA, 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
Third 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 third quarter fiscal 2018 and 2017 consolidated operating
income and margin, net income and diluted earnings per share, and
adjusted third 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):
- Net U.S. deferred tax liability
remeasurement; and
- TNT Express integration expenses.
The provisional benefit from the remeasurement of our net U.S.
deferred tax liability is excluded from our third quarter fiscal
2018 consolidated non-GAAP financial measures because it results
from the non-recurring impact of a significant change in the U.S.
federal statutory tax rate due to the enactment of the TCJA. The
adjustment to our third quarter fiscal 2018 consolidated financial
measures includes only this transitional impact. This provisional
benefit is an estimate subject to adjustment during a 12-month
measurement period.
We expect to incur significant expenses over the next few years
in connection with our integration of TNT Express. We have adjusted
our third quarter fiscal 2018 and 2017 consolidated financial
measures and the FedEx Express segment third quarter fiscal 2018
and 2017 financial measures to exclude TNT Express integration
expenses because we generally would not incur such expenses as part
of our continuing operations. The integration expenses are
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. The integration expenses also include
any restructuring charges at TNT Express.
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-Per-Share Guidance
and Fourth Quarter Fiscal 2018 Operating Income and Margin
Projections
Our fiscal 2018 earnings-per-share (“EPS”) guidance is a
non-GAAP financial measure because it excludes the fiscal 2018
year-end MTM pension accounting adjustments, the provisional
benefit from the remeasurement of our net U.S. deferred tax
liability, projected fiscal 2018 TNT Express integration expenses
(which include any restructuring charges at TNT Express), and
charges related to certain first quarter FedEx Trade Networks legal
matters.
Our projected fourth quarter fiscal 2018 consolidated operating
income and margin are non-GAAP financial measures because they
exclude the fiscal 2018 year-end MTM pension accounting adjustments
and projected fourth quarter fiscal 2018 TNT Express integration
expenses. Our projected fourth quarter fiscal 2018 FedEx Express
segment operating margin is a non-GAAP financial measure because it
excludes projected fourth quarter fiscal 2018 TNT Express
integration expenses.
We have provided fiscal 2018 non-GAAP EPS guidance, projected
fourth quarter fiscal 2018 non-GAAP consolidated operating income
and margin and projected fourth quarter fiscal 2018 non-GAAP FedEx
Express segment operating margin for the same reasons that were
outlined above for historical non-GAAP measures. The fiscal 2018
year-end MTM pension accounting adjustments are excluded from our
fiscal 2018 non-GAAP EPS guidance and projected fourth quarter
fiscal 2018 consolidated operating income and margin because these
non-cash items are unrelated to our core operating performance.
Similarly, charges related to certain first quarter FedEx Trade
Networks legal matters are excluded from our fiscal 2018 non-GAAP
EPS guidance because they are unrelated to our core operating
performance and to assist investors with assessing trends in our
underlying business. The provisional benefit from the remeasurement
of our net U.S. deferred tax liability is excluded from our fiscal
2018 non-GAAP EPS guidance for the same reason described above for
historical non-GAAP measures. Projected fiscal 2018 TNT Express
integration expenses are excluded from our fiscal 2018 non-GAAP EPS
guidance, projected fourth quarter fiscal 2018 non-GAAP
consolidated operating income and margin and FedEx Express segment
operating margin for the same reasons described 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 fiscal 2018 non-GAAP EPS
guidance or projected fourth quarter fiscal 2018 consolidated
operating income or margin. For this reason, a full reconciliation
of our fiscal 2018 non-GAAP EPS guidance and projected fourth
quarter fiscal 2018 non-GAAP consolidated operating income and
margin to the most directly comparable GAAP measures is
impracticable. It is reasonably possible, however, that our fourth
quarter fiscal 2018 MTM pension accounting adjustments could have a
material impact on our full-year and fourth quarter fiscal 2018
consolidated financial results. The tables included below titled
“Fiscal 2018 Earnings-Per-Share Outlook” and “Fourth Quarter Fiscal
2018 Outlook—FedEx Corporation” outline the impact of the items
that are excluded from our fiscal 2018 non-GAAP EPS guidance and
projected fourth quarter fiscal 2018 non-GAAP consolidated
operating income and margin, other than the year-end MTM pension
accounting adjustments.
Third Quarter Fiscal
2018
FedEx
Corporation
Dollars in millions, except EPS
Operating
Income
Net
Diluted Earnings
Income
Margin
Taxes1
Income2
Per Share
GAAP measure $ 1,001 6.1
% ($1,200 ) $ 2,074 $
7.59 Net U.S. deferred tax liability remeasurement
—
—
1,150
(1,150
)
(4.21
)
TNT Express integration expenses3
106
0.6
%
14
92
0.34
Non-GAAP measure $ 1,107 6.7 % ($36 ) $ 1,016 $ 3.72
FedEx Express
Segment
Dollars in millions
Operating
Income
Margin
GAAP measure $ 424 4.5 %
TNT Express integration expenses
86
0.9 % Non-GAAP measure $ 510 5.4 %
Third Quarter Fiscal
2017
FedEx
Corporation
Dollars in millions, except EPS
Operating
Income
Net
Diluted Earnings
Income
Margin
Taxes1
Income2
Per Share
GAAP measure $ 1,025 6.8
% $ 337 $ 562 $
2.07 TNT Express integration expenses3
78
0.6
%
15
63
0.23
Non-GAAP measure $ 1,103 7.4 % $ 352 $ 625 $ 2.30
FedEx Express
Segment
Dollars in millions
Operating
Income
Margin
GAAP measure $ 557 6.5 %
TNT Express integration expenses
53
0.6 % Non-GAAP measure $ 610 7.1 %
Fiscal 2018 Earnings-Per-Share
Outlook
Dollars in millions, except EPS
Adjustments
Diluted Earnings
Per
Share
Earnings per diluted share before MTM
pension accounting adjustments (non-GAAP)4
$17.90 to $18.30
Net U.S. deferred tax liability remeasurement1
($1,150)
(4.21)
TNT Express integration expenses $450
Income tax effect1
(100) Net of tax effect $350 1.29 FedEx Trade Networks legal
matters
$ 7
Income tax effect1
(2) Net of tax effect
$ 5
0.02 Earnings per diluted share with adjustments (non-GAAP)4
$15.00 to $15.40
Fourth Quarter Fiscal 2018
Outlook
FedEx
Corporation
Dollars in millions
Operating
Income
Margin
Operating results before MTM pension accounting adjustments
(non-GAAP)4
$1,840 to $1,940
10.4% to 11.1%
TNT Express integration expenses3
110 0.6% to
0.7% Operating results excluding TNT Express integration
expenses (non-GAAP) 4
$1,950 to $2,050
11.0% to 11.8%
FedEx Express
Segment
Operating Margin GAAP
measure 9.1% to 9.6% TNT Express integration expenses
0.8% Non-GAAP measure 9.9% to 10.4%
Notes: 1 – Income taxes are based on the company’s
approximate statutory tax rates, and for fiscal 2018, give
consideration to the effects of the TCJA on the fiscal 2018 rates.
2 – Effect of “Total other (expense) income” on net income amount
not shown. 3 – These expenses are 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180320006301/en/
FedEx Corp.Media Contact:Jess Bunn, 901-818-7463orInvestor
Contact:Mickey Foster, 901-818-7468Home Page: fedex.com
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