Full-Year Earnings Outlook Increased
FedEx Corp. (NYSE: FDX) today reported earnings of $2.84 per
diluted share ($3.18 per diluted share on an adjusted basis) for
the second quarter ended November 30, compared to earnings of $2.59
per diluted share ($2.77 per diluted share on an adjusted basis) a
year ago.
Both as-reported and adjusted fiscal 2018 earnings reflect the
estimated negative impact of the June 27 cyberattack affecting TNT
Express ($0.31 per diluted share). This year’s and last year’s
quarterly consolidated earnings have been adjusted for TNT Express
integration expenses of $0.33 and $0.18 per diluted share,
respectively.
“Strategic execution by the FedEx team and a stronger global
economy drove improved financial results, and we are well
positioned for profitable, long-term growth,” said Frederick W.
Smith, FedEx Corp. chairman and chief executive officer. “We are on
track for another record holiday-shipping season, and
customer-service levels have been outstanding. We thank our more
than 400,000 dedicated team members around the world for their
extraordinary dedication.”
Second Quarter Results
FedEx Corp. reported the following consolidated results for the
second quarter (adjusted measures exclude TNT Express integration
expenses):
Fiscal
2018
Fiscal
2017
As Reported
(GAAP)
Adjusted
(non-GAAP)
As Reported
(GAAP)
Adjusted
(non-GAAP)
Revenue $16.3 billion $16.3 billion $14.9 billion $14.9 billion
Operating income $1.26 billion $1.38 billion $1.17 billion $1.23
billion Operating margin 7.7% 8.5% 7.8% 8.2% Net income $775
million $866 million $700 million $750 million Diluted EPS $2.84
$3.18 $2.59 $2.77
Operating income increased due to higher base rates and
increased volume at each transportation segment, partially offset
by reduced revenue resulting from the TNT Express cyberattack and
higher TNT Express integration expenses. Results also reflect a tax
benefit of approximately $80 million ($0.29 per diluted share) from
foreign tax credits associated with a dividend paid from foreign
operations, and a favorable net impact from fuel.
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 or effective
tax rate (ETR) guidance on a GAAP basis.
Before year-end MTM pension accounting adjustments, earnings are
now projected to be $11.45 to $12.05 per diluted share for fiscal
2018. The fiscal 2018 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 $12.70 to $13.30 per diluted share. These
forecasts assume moderate economic growth and continued recovery
from the cyberattack. The fiscal 2018 ETR forecast is now 33% to
34% before year-end MTM pension accounting adjustments. Each of
these forecasts is based on current U.S. tax laws.
If the Tax Cuts and Jobs Act is enacted as set forth in the
Joint Conference Report, earnings per share could increase by an
estimated $4.40 to $5.50 per diluted share for fiscal 2018 before
year-end MTM pension accounting adjustments, primarily due to the
revaluation of net deferred tax liabilities. This range also
includes an estimated $0.85 to $1.00 per diluted share due to a
lower tax rate on fiscal 2018 earnings.
The capital spending forecast for fiscal 2018 remains $5.9
billion. The company is accelerating the integration process and
increasing investments to move TNT Express information technology
and operational infrastructure to FedEx infrastructure due to the
recent cyberattack at TNT Express. As a result, the total TNT
Express integration program expense through fiscal 2020 is now
estimated to be approximately $1.4 billion, up from the previous
$800 million estimate, of which $450 million is expected to be
incurred in fiscal 2018.
“We are increasing our fiscal 2018 forecast, due to enhanced
revenue quality, solid demand trends and our success in restoring
business impacted by this summer’s cyberattack,” said Alan B. Graf,
Jr., FedEx Corp. executive vice president and chief financial
officer. “We expect to see improved results in our fiscal second
half, and we reaffirm our commitment to improve 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 second 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 $9.35 billion $9.35 billion $8.64 billion $8.64 billion
Operating income $717 million $813 million $706 million $734
million
Operating income YOY change %
2%
11%
Operating margin 7.7% 8.7% 8.2% 8.5%
Revenue grew primarily due to higher base rates, strong growth
in international services, higher fuel surcharges and favorable
exchange rates, partially offset by the impact from the TNT Express
cyberattack.
Operating income increased due to higher revenue, a favorable
net impact from fuel and continued cost efficiencies, partially
offset by an estimated $100 million impact from the cyberattack and
the timing of aircraft maintenance events. As-reported results
include $96 million of TNT Express integration expenses.
FedEx Ground Segment
For the second quarter, the FedEx Ground segment reported:
Fiscal 2018
Fiscal 2017 Change Revenue
$4.93 billion $4.42 billion 12% Operating income $521 million $465
million 12% Operating margin 10.6% 10.5% 0.1 pts
Revenue increased due to average daily package volume growth of
7% and higher base rates.
Operating results improved due to revenue growth, partially
offset by higher purchased transportation, network expansion and
staffing costs and increased self-insurance reserves.
FedEx Freight Segment
For the second quarter, the FedEx Freight segment reported:
Fiscal 2018
Fiscal 2017 Change Revenue
$1.76 billion $1.60 billion 10% Operating income $118 million $88
million 34% Operating margin 6.7% 5.5% 1.2 pts
Revenue increased due to less-than-truckload (LTL) revenue per
shipment growth of 7% and average daily LTL shipment growth of
4%.
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 $62 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 second 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. EST on December 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 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,
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
Second 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 second quarter fiscal 2018 and 2017 consolidated operating
income and margin, net income and diluted earnings per share, and
adjusted second quarter fiscal 2018 and 2017 FedEx Express segment
operating income and margin. These financial measures have been
adjusted to exclude the impact of TNT Express integration
expenses.
We expect to incur significant expenses over the next few years
in connection with our integration of TNT Express. We have adjusted
our second quarter fiscal 2018 and 2017 financial measures and the
FedEx Express segment second 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
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. Our fiscal 2018 ETR forecast is a non-GAAP
financial measure because it excludes the fiscal 2018 year-end MTM
pension accounting adjustments.
We have provided a non-GAAP earnings guidance measure 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 earnings guidance
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 earnings guidance because they are unrelated to our core
operating performance and to assist investors with assessing trends
in our underlying business. TNT Express integration expenses are
excluded from our fiscal 2018 earnings guidance 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 earnings guidance
or ETR forecast. For this reason, a full reconciliation of our
fiscal 2018 earnings guidance or ETR forecast 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 and ETR. 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.
Second Quarter Fiscal
2018
FedEx
Corporation
Dollars in millions, except EPS
Operating
Income
Net
Diluted Earnings
Income
Margin
Taxes1
Income2
Per Share3
GAAP measure $1,262 7.7% $364
$775 $2.84 TNT Express integration expenses4
122
0.8%
31
91
0.33
Non-GAAP measure $1,384 8.5% $395 $866 $3.18
FedEx Express
Segment
Dollars in millions
Operating
Income
Margin
GAAP measure $717 7.7% TNT Express integration
expenses
96 1.0% Non-GAAP measure $813
8.7%
Second Quarter Fiscal
2017
FedEx
Corporation
Dollars in millions, except EPS
Operating
Income
Net
Diluted Earnings
Income
Margin
Taxes1
Income2
Per Share
GAAP measure $1,167 7.8% $378
$700 $2.59 TNT Express integration expenses4
58
0.4%
8
50
0.18
Non-GAAP measure $1,225 8.2% $386 $750 $2.77
FedEx Express
Segment
Dollars in millions
Operating
Income
Margin
GAAP measure $706 8.2% TNT Express integration
expenses
28 0.3% Non-GAAP measure $734
8.5%
Fiscal 2018 Earnings
Outlook
Dollars in millions, except EPS
Adjustments
Diluted Earnings
Per
Share
Earnings per diluted share before MTM
pension accounting adjustments (non-GAAP)5
$11.45 to $12.05
TNT Express integration expenses
$450
Income tax effect1
(116) Net of tax effect $334 1.23 FedEx Trade Networks legal
matters $7
Income tax effect1
(2) Net of tax effect $ 5 0.02 Earnings per diluted share with
adjustments5
$12.70 to $13.30
Notes: 1 – Income taxes are based on the company’s
approximate statutory tax rates (under current U.S. tax laws)
applicable to each transaction. 2 – Effect of “Total other
(expense) income” on net income amount not shown. 3 – Does not sum
to total due to rounding. 4 – These expenses were recognized at
FedEx Corporate and FedEx Express. 5 – 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/20171219006003/en/
FedEx Corp.Media Contact:Jess Bunn, 901-818-7463orInvestor
Contact:Mickey Foster, 901-818-7468Home Page: fedex.com
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