FedEx Corp. (NYSE: FDX) today reported the following
consolidated results for the second quarter ended November 30
(adjusted measures exclude the items listed below for the
applicable fiscal year):
Fiscal 2020
Fiscal 2019
As Reported (GAAP)
Adjusted (non-GAAP)
As Reported (GAAP)
Adjusted (non-GAAP)
Revenue
$17.3 billion
$17.3 billion
$17.8 billion
$17.8 billion
Operating income
$554 million
$684 million
$1.17 billion
$1.33 billion
Operating margin
3.2%
3.9%
6.6%
7.5%
Net income
$560 million
$660 million
$935 million
$1.08 billion
Diluted EPS
$2.13
$2.51
$3.51
$4.03
This year’s and last year’s quarterly consolidated results have
been adjusted for:
Impact per diluted share
Fiscal 2020
Fiscal 2019
TNT Express integration expenses
$0.19
$0.34
Aircraft impairment charges
0.19
—
FedEx Ground legal matter
—
0.17
Net U.S. deferred tax liability
remeasurement
—
0.02
“Fiscal 2020 is a year of continued significant challenges and
changes for FedEx, particularly in the quarter just ended due to
the compressed shipping season,” said Frederick W. Smith, FedEx
Corp. chairman and chief executive officer. “We have significantly
enhanced our e-commerce capabilities with strategic initiatives
including year-round seven-day FedEx Ground delivery, enhanced
large package capabilities and the insourcing of FedEx SmartPost
packages. These changes have been well-received by the marketplace
as reflected in our record volumes this peak season. While we have
experienced some higher-than-expected expenses this quarter, we
forecast FedEx Ground operating margins to rebound to the teens in
our fiscal fourth quarter as the bow wave of costs for these
changes is absorbed.
“Thanks to over 490,000 FedEx team members for their hard work
and dedication to our Purple Promise of making every FedEx
experience outstanding.”
Operating results declined due to weak global economic
conditions, increased FedEx Ground costs from expanded service
offerings, the loss of business from a large customer, a continuing
mix shift to lower-yielding services and a more competitive pricing
environment. In addition, the later timing of the Thanksgiving
holiday resulted in the shifting of Cyber Week into December, which
negatively impacted the quarter’s results. These factors were
partially offset by lower variable incentive compensation expenses
and increased yields at FedEx Freight. Net income includes a tax
benefit of $133 million ($0.51 per diluted share) from the
recognition of certain foreign tax loss carryforwards.
FedEx Express recorded asset impairment charges of $66 million
($50 million, net of tax, or $0.19 per diluted share) related to
the permanent retirement of 10 Airbus A310-300 aircraft and 12
related engines. During the remainder of fiscal 2020, FedEx Express
will make further network capacity changes by reducing flight
hours. The company continues to evaluate if additional aircraft
retirements are warranted.
“Our strategies are clear: To develop the premier e-commerce
portfolio in the U.S., improve international profitability, enhance
our market-leading revenue quality and continue to optimize our
U.S. and international networks,” said Rajesh Subramaniam, FedEx
Corp. president and chief operating officer. “We are also taking
immediate actions to address the short-term challenges facing our
business, including eliminating multiple international flights to
reflect reduced global air freight demand. These actions combined
with benefits from the TNT integration should allow FedEx Express
to enter fiscal 2021 with profit improvement underway.”
Outlook
FedEx is unable to forecast the fiscal 2020 year-end
mark-to-market (MTM) retirement plan accounting adjustment. As a
result, the company is unable to provide a fiscal 2020 earnings per
share or effective tax rate (ETR) outlook on a GAAP basis.
FedEx now forecasts fiscal 2020 earnings of $9.10 to $10.35 per
diluted share before the year-end MTM retirement plan accounting
adjustment, and earnings of $10.25 to $11.50 per diluted share
before the year-end MTM retirement plan accounting adjustment and
excluding TNT Express integration expenses and aircraft impairment
charges. The company’s ETR is now expected to be 23% to 26% before
the year-end MTM retirement plan accounting adjustment. The capital
spending forecast remains $5.9 billion.
“Our revised guidance reflects lower-than-expected revenue at
each of our transportation segments and higher-than-expected
expenses driven by continued mix shift to residential delivery
services,” said Alan B. Graf, Jr., FedEx Corp. executive vice
president and chief financial officer. “In response, we are
implementing reductions to the global FedEx Express air network to
better match capacity with demand. We are also further restricting
hiring and pursuing opportunities to optimize our networks,
including investments in technology aimed at improving our
productivity and lowering our costs.”
These forecasts assume moderate U.S. economic growth, the
company’s current fuel price expectations, no further weakening in
international economic conditions from the company’s current
forecast and no additional adverse developments in international
trade policies and relations. FedEx’s ETR and earnings per share
outlooks are based on the company’s current interpretations of the
Tax Cuts and Jobs Act (TCJA) and related regulations and guidance,
and are subject to change based on future guidance, as well as
FedEx’s ability to defend its interpretations.
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 $69 billion, the company
offers integrated business solutions 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 490,000
team members to remain 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 and
Statistical Books.
These materials, as well as a webcast of the earnings release
conference call to be held at 5:30 p.m. EST on December 17, 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; anti-trade
measures and additional changes in international trade policies and
relations; a significant data breach or other disruption to our
technology infrastructure; our ability to successfully integrate
the businesses and operations of FedEx Express and TNT Express in
the expected time frame and at the expected cost and to achieve the
expected benefits from the combined businesses; our ability to
successfully implement our business strategy and effectively
respond to changes in market dynamics; the impact of the United
Kingdom’s expected withdrawal from the European Union and the terms
of its withdrawal if it ultimately occurs; our ability to match
capacity to shifting volume levels; changes in fuel prices or
currency exchange rates; the impact of intense competition;
evolving or new U.S. domestic or international government
regulation or regulatory actions; future guidance, regulations,
interpretations or challenges to our tax positions relating to the
TCJA and our ability to defend our interpretations of the TCJA; our
ability to effectively operate, integrate, leverage and grow
acquired businesses; legal challenges or changes related to service
providers 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 of any international conflicts or
terrorist activities; our ability to quickly and effectively
restore operations following adverse weather or a localized
disaster or disturbance in a key geography; 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 2020 and Fiscal
2019 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 2020 and 2019 consolidated operating
income and margin, net income and diluted earnings per share, and
adjusted second quarter fiscal 2020 and 2019 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 incurred in fiscal 2020 and
2019;
- Fiscal 2020 aircraft impairment charges;
- Fiscal 2019 charges related to a legal matter involving FedEx
Ground; and
- The fiscal 2019 revision to the net U.S. deferred tax liability
remeasurement included in our fiscal 2018 earnings.
We have incurred and expect to incur significant expenses
through fiscal 2021, and may incur additional expenses thereafter,
in connection with our integration of TNT Express. We have adjusted
our second quarter fiscal 2020 and 2019 consolidated financial
measures and the FedEx Express segment second quarter fiscal 2020
and 2019 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
predominantly incremental costs directly associated with the
integration of TNT Express, including professional and legal fees,
salaries and employee benefits, travel and advertising expenses.
Internal salaries and employee benefits 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.
The aircraft impairment charges and charges related to the
settlement of a legal matter involving FedEx Ground are excluded
from our second quarter fiscal 2020 and 2019 consolidated non-GAAP
financial measures and FedEx Express segment non-GAAP financial
measures, as applicable, because they are unrelated to our core
operating performance and to assist investors with assessing trends
in our underlying businesses.
The fiscal 2019 revision to the provisional benefit from the
remeasurement of our net U.S. deferred tax liability as of the date
of the enactment of the Tax Cuts and Jobs Act (TCJA) is excluded
from our second quarter fiscal 2019 consolidated non-GAAP financial
measures because the provisional benefit resulted from the
non-recurring impact of a significant change in the U.S. federal
statutory income tax rate due to the enactment of the TCJA on our
overall deferred tax position, which accumulated over many
reporting periods prior to enactment. The adjustment to our second
quarter fiscal 2019 consolidated financial measures includes only a
revision to this transitional impact.
As previously disclosed, the provisional benefit from the
remeasurement of our net U.S. deferred tax liability included in
our fiscal 2018 earnings was an estimate subject to adjustment
during a 12-month measurement period ending in fiscal 2019. The
exclusion of adjustments to this provisional benefit from our
second quarter fiscal 2019 non-GAAP earnings measures is consistent
with our presentation of the effects of the initial provisional
benefit in our fiscal 2018 non-GAAP earnings measures. We have not
included the tax benefit from the recognition of certain tax loss
carryforwards in the second quarter fiscal 2020 adjustment because
the benefit resulted from operational changes in a foreign
jurisdiction.
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 financial 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 Securities and Exchange
Commission rules, the tables below present a reconciliation of our
presented non-GAAP financial measures to the most directly
comparable GAAP measures.
Fiscal 2020 Earnings Per Share and
Effective Tax Rate Forecasts
Our fiscal 2020 earnings per share (EPS) forecast is a non-GAAP
financial measure because it excludes the fiscal 2020 year-end
mark-to-market (MTM) retirement plan accounting adjustment,
estimated fiscal 2020 TNT Express integration expenses, and
aircraft impairment charges. Our fiscal 2020 effective tax rate
(ETR) forecast is a non-GAAP financial measure because it excludes
the impact of the fiscal 2020 year-end MTM retirement plan
accounting adjustment.
We have provided these non-GAAP financial measures for the same
reasons that were outlined above for historical non-GAAP measures.
The fiscal 2020 year-end MTM retirement plan accounting adjustment
is excluded from our fiscal 2020 EPS and ETR forecasts because it
is unrelated to our core operating performance and to assist
investors with assessing trends in our underlying businesses.
Estimated fiscal 2020 TNT Express integration expenses and the
aircraft impairment charges are excluded from our fiscal 2020 EPS
forecast for the same reasons described above for historical
non-GAAP measures.
We are unable to predict the amount of the year-end MTM
retirement plan accounting adjustment, as it is significantly
impacted by changes in interest rates and the financial markets, so
such adjustment is not included in our fiscal 2020 EPS and ETR
forecasts. For this reason, a full reconciliation of our fiscal
2020 EPS and ETR forecasts to the most directly comparable GAAP
measures is impracticable. It is reasonably possible, however, that
our fiscal 2020 year-end MTM retirement plan accounting adjustment
could have a material impact on our fiscal 2020 consolidated
financial results and ETR.
The table included below titled “Fiscal 2020 Earnings Per Share
Forecast” outlines the impacts of the items that are excluded from
our fiscal 2020 EPS forecast, other than the year-end MTM
retirement plan accounting adjustment.
Second Quarter Fiscal
2020
FedEx
Corporation
Dollars in millions, except EPS
Operating
Income
Net
Diluted Earnings
Income
Margin1
Taxes2
Income3
Per
Share
GAAP measure
$
554
3.2
%
$
12
$
560
$
2.13
TNT Express integration expenses4
64
0.4
%
14
50
0.19
Aircraft impairment charges
66
0.4
%
16
50
0.19
Non-GAAP measure
$
684
3.9
%
$
42
$
660
$
2.51
FedEx Express
Segment
Dollars in millions
Operating
Income
Margin1
GAAP measure
$236
2.6%
TNT Express integration expenses
49
0.5%
Aircraft impairment charges
66
0.7%
Non-GAAP measure
$351
3.9%
Second Quarter Fiscal
2019
FedEx
Corporation
Dollars in millions, except EPS
Operating
Income
Net
Diluted Earnings
Income
Margin
Taxes1,2
Income3
Per
Share1
GAAP measure
$1,168
6.6%
$242
$ 935
$3.51
TNT Express integration expenses4
114
0.6%
24
90
0.34
FedEx Ground legal matter
46
0.3%
—
46
0.17
Net U.S. deferred tax liability
remeasurement
—
—
(4)
4
0.02
Non-GAAP measure
$1,328
7.5%
$261
$1,075
$4.03
Second Quarter Fiscal 2019
(continued)
FedEx Express
Segment
Dollars in millions
Operating
Income
Margin
GAAP measure
$630
6.6%
TNT Express integration
expenses
99
1.0%
Non-GAAP measure
$729
7.6%
Fiscal 2020 Earnings Per Share
Forecast
Dollars in millions, except EPS
Adjustments
Diluted Earnings Per Share
Earnings per diluted share before
year-end MTM retirement plan accounting adjustment (non-GAAP)5
$9.10 to $10.35
TNT Express integration
expenses
$325
Income tax effect2
(72)
Net of tax effect
$253
0.96
Aircraft impairment charges
$66
Income tax effect2
(16)
Net of tax effect
$50
0.19
Earnings per diluted share with
adjustments5
$10.25 to $11.50
Notes:
1 – Does not sum to total due to rounding. 2 – Income taxes are
based on the company’s approximate statutory tax rates applicable
to each transaction. 3 – Effect of “total other (expense) income”
on net income amount not shown. 4 – These expenses, including
restructuring charges, were recognized at FedEx Corporate and FedEx
Express. 5 – The year-end MTM retirement plan accounting
adjustment, which is impracticable to calculate at this time, is
excluded.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191217005818/en/
Media Contact: Jenny Robertson 901-434-4829 Investor Contact:
Mickey Foster 901-818-7468 Home Page: fedex.com
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