FedEx Corp. (NYSE: FDX) today reported earnings of $2.59 per
diluted share ($2.80 per diluted share on an adjusted basis) for
the second quarter ended November 30, compared to earnings of $2.44
per diluted share a year ago ($2.58 per diluted share last year on
an adjusted basis).
This year’s and last year’s quarterly consolidated earnings have
been adjusted for:
Impact per diluted share
Second Quarter
Fiscal 2017
Fiscal 2016 TNT Express integration and Outlook
restructuring program costs
$
0.18
$
—
TNT Express intangible asset amortization
0.03
—
FedEx Ground legal matters — 0.09 TNT Express acquisition expenses
— 0.04
“FedEx increased revenues and operating income despite continued
low growth rates in the global economy. We are in the home stretch
of our peak shipping season, and our service levels are high,
thanks to the outstanding efforts of our hundreds of thousands of
team members around the world,” said Frederick W. Smith, FedEx
Corp. chairman, president and chief executive officer. “The
integration of TNT Express into our broad portfolio of global
business solutions is proceeding smoothly and according to
plan.”
Second Quarter Results
FedEx Corp. reported the following consolidated results for the
second quarter (adjusted measures exclude TNT Express integration
and Outlook restructuring program costs and intangible asset
amortization expense from this year’s results and expenses related
to FedEx Ground legal matters and the TNT Express acquisition from
last year’s results):
Fiscal 2017
Fiscal 2016
As Reported
(GAAP)
Adjusted
(non-GAAP)
As Reported
(GAAP)
Adjusted
(non-GAAP)
Revenue $14.9 billion $14.9 billion $12.5 billion $12.5 billion
Operating income
$1.17 billion
$1.23 billion
$1.14 billion
$1.20 billion
Operating margin
7.8%
8.3%
9.1%
9.6%
Net income $700 million $757 million $691 million $729 million
Diluted EPS $2.59 $2.80
$2.44
$2.58
Operating income rose compared to last year primarily due to the
inclusion of TNT Express and increased base rates and ongoing cost
efficiencies at FedEx Express. These factors were partially offset
by TNT Express integration and restructuring program costs and
intangible asset amortization, and lower operating income at FedEx
Ground and FedEx Freight.
A gain from the sale of an investment benefited the quarter’s
results by $0.08 per diluted share. In addition, the adoption of a
new accounting standard related to share-based payment transactions
benefited the quarter’s results by $0.07 per diluted share.
Earnings Guidance
FedEx is unable to forecast the fiscal 2017 year-end
mark-to-market (“MTM”) pension accounting adjustments. As a result,
the company is unable to provide fiscal 2017 earnings guidance on a
GAAP basis.
Before year-end MTM pension accounting adjustments, earnings for
fiscal 2017 are now projected to be $10.95 to $11.45 per diluted
share. This forecast includes TNT Express results and assumes
moderate economic growth. The fiscal 2017 earnings forecast before
year-end MTM pension accounting adjustments and excluding TNT
Express integration and Outlook restructuring program costs and
intangible asset amortization remains $11.85 to $12.35 per diluted
share. The capital spending forecast for the fiscal year, which
includes TNT Express, remains $5.6 billion.
“We are on track to achieve our fiscal 2017 earnings forecast,
as we continue long-term investments in our networks,” said Alan B.
Graf, FedEx Corp. executive vice president and chief financial
officer. “While these network projects are impacting FedEx Ground’s
near-term profitability, the investments will expand capacity,
improve service and enhance long-term returns and cash flows.”
Executive Appointments
The Board of Directors of FedEx Corporation has approved the
elections of Donald F. Colleran as Executive Vice President, Chief
Sales Officer, and Rajesh Subramaniam as Executive Vice President,
Chief Marketing and Communications Officer, effective January 1,
2017. Messrs. Colleran and Subramaniam also will become members of
the FedEx Strategic Management Committee on that date.
FedEx Express Segment
For the second quarter, the FedEx Express segment reported
(adjusted measures exclude TNT Express integration costs):
Fiscal 2017
Fiscal 2016
As Reported
(GAAP)
Adjusted
(non-GAAP)
As Reported
(GAAP)
Revenue $6.74 billion $6.74 billion $6.59 billion Operating income
$636 million $654 million $622 million Operating income YOY change
%
2%
5%
Operating margin 9.4% 9.7% 9.4%
Revenue increased 2% due to increased base rates and higher
package volume. U.S. domestic revenue per package increased 3% and
U.S. freight revenue per pound increased 6%, both due to higher
base rates. International export revenue per package increased 1%
as higher base rates were partially offset by unfavorable currency
exchange rates and lower fuel surcharges. International export
average daily volume grew 2%, driven by growth in both FedEx
International Priority® and FedEx International Economy®.
Operating results improved due to increased base rates and
ongoing cost efficiencies. As-reported results include $18 million
of TNT Express integration expenses. Fuel and currency exchange
rates had a minimal impact on the quarter’s results.
TNT Express Segment
For the second quarter, the TNT Express segment reported
(adjusted measures exclude TNT Express integration and Outlook
restructuring program costs and intangible asset amortization
expense):
Fiscal 2017
As Reported
(GAAP)
Adjusted
(non-GAAP)
Revenue $1.90 billion $1.90 billion Operating income $70 million
$90 million Operating margin 3.7% 4.7%
As-reported results include $10 million of intangible asset
amortization expense and $10 million of integration and Outlook
restructuring program costs.
FedEx Ground Segment
For the second quarter, the FedEx Ground segment reported:
Fiscal
2017 Fiscal 2016
Change Revenue $4.42 billion $4.05 billion 9%
Operating income $465 million $526 million (12%) Operating margin
10.5% 13.0% (2.5 pts)
Revenue increased due to higher volume and yields. FedEx Ground
average daily volume grew 5% in the second quarter, driven by
e–commerce and commercial package growth. FedEx Ground yield
increased 4% due to higher base rates.
Operating results decreased due to higher rent, depreciation and
staffing as a result of network expansion, and increased purchased
transportation rates.
FedEx Freight Segment
For the second quarter, the FedEx Freight segment reported:
Fiscal
2017 Fiscal 2016
Change Revenue $1.60 billion $1.55 billion 3%
Operating income $88 million $101 million (13%) Operating margin
5.5% 6.5% (1.0 pts)
Revenue increased 3% due to growth in less-than-truckload
average daily shipments, partially offset by lower weight per
shipment.
Operating results decreased due to the impact from lower average
weight per shipment and higher information technology expenses.
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 $58 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 2017 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 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, our ability
to successfully integrate the businesses and operations of FedEx
Express and TNT Express in the expected time frame, our ability to
match capacity to shifting volume levels, a significant data breach
or other disruption to our technology infrastructure, changes in
fuel prices or currency exchange rates, legal challenges or changes
related to FedEx Ground’s owner-operators and the drivers providing
services on their behalf, new U.S. domestic or international
government regulation, our ability to effectively operate,
integrate and leverage acquired businesses, disruptions or
modifications in service by, or changes in the business 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.
RECONCILIATIONS OF NON-GAAP FINANCIAL
MEASURESTO GAAP FINANCIAL MEASURES
Second Quarter Fiscal 2017 and Fiscal
2016 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 2017 and 2016 consolidated operating
income and margin, net income and earnings per share, and adjusted
second quarter fiscal 2017 FedEx Express segment and TNT 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 and Outlook
restructuring program costs;
- TNT Express intangible asset
amortization;
- Expenses in connection with the
settlement of independent contractor litigation matters involving
FedEx Ground; and
- TNT Express acquisition expenses.
We expect to incur significant expenses over the next few years
in connection with our integration of TNT Express and the Outlook
restructuring program. We have adjusted the applicable fiscal 2017
second quarter 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. The Outlook restructuring program is a
TNT Express legacy program that includes various initiatives
focused on yield management, improved operational efficiency and
productivity and improved customer service.
We will also have recurring intangible asset amortization
expenses. The company and TNT Express incurred, and will continue
incurring, these expenses solely as a result of the company’s
acquisition of TNT Express and the related purchase accounting
treatment. We excluded intangible asset amortization from the
company’s and the TNT Express segment’s fiscal 2017 second quarter
financial results to help investors understand the impact of these
expenses on TNT Express’s base business and to facilitate the
overall comparability of the company’s consolidated financial
results. We will not adjust our financial results for intangible
asset amortization beginning in fiscal 2018 because the company’s
and the TNT Express segment’s financial results will be comparable
year-over-year at that time. Given the timing and complexity of the
TNT Express acquisition, the presentation of the TNT Express
segment in the company’s financial statements, including the
allocation of the purchase price, is preliminary and will likely
change in future periods, perhaps significantly, as fair value
estimates of the assets acquired and liabilities assumed are
refined during the measurement period. We will complete our
purchase price allocation no later than the fourth quarter of
2017.
The FedEx Ground legal matters are excluded from our fiscal 2016
second quarter financial measures because they are unrelated to our
core operating performance and to assist investors with assessing
trends in our underlying businesses.
The TNT Express acquisition expenses are excluded from our
fiscal 2016 second quarter financial measures because these items
impacted the year-over-year comparability of our financial
statements and are not related to our core operating
performance.
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 2017 Earnings
Guidance
Our fiscal 2017 earnings guidance is a non-GAAP financial
measure because it excludes the fiscal 2017 year-end MTM pension
accounting adjustments, projected fiscal 2017 TNT Express
integration and Outlook restructuring program costs, and projected
fiscal 2017 TNT Express intangible asset amortization. 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 2017 earnings guidance
to the most directly comparable GAAP measure is impracticable. It
is reasonably possible, however, that our fourth quarter fiscal
2017 MTM pension accounting adjustments could have a material
impact on our fiscal 2017 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.
Second Quarter Fiscal
2017
FedEx
Corporation
Dollars in millions, except EPS
Diluted Operating Income Net
Earnings
Income1
Margin
Taxes2
Income3
Per Share GAAP measure $ 1,167
7.8 % $ 378 $ 700
$ 2.59
TNT Express integration and Outlook
restructuring program costs4
58
0.4
%
8
50
0.18
TNT Express intangible asset amortization
10
0.1
%
3
7
0.03
Non-GAAP measure $ 1,234 8.3 % $ 389 $ 757 $ 2.80
FedEx Express
Segment
Dollars in millions
Operating
Income Margin GAAP measure $ 636
9.4 % TNT Express integration costs
18 0.3 % Non-GAAP measure $
654 9.7 %
TNT Express
Segment
Dollars in millions
Operating
Income
Margin
GAAP measure $ 70 3.7 % TNT
Express integration and Outlook restructuring program costs
10
0.5
%
TNT Express intangible asset amortization
10
0.5 % Non-GAAP measure $ 90 4.7 %
Second Quarter Fiscal
2016
FedEx
Corporation
Dollars in millions, except EPS
Diluted
Operating
Income Net Earnings
Income1
Margin1
Taxes2
Income1,3
Per Share1
GAAP measure $ 1,137 9.1 %
$ 364 $ 691 $ 2.44 FedEx
Ground legal matters
41
0.3
%
16
25
0.09
TNT Express acquisition expenses
17
0.1
%
7
12
0.04
Non-GAAP measure $ 1,196 9.6 % $ 387 $ 729 $ 2.58
Fiscal 2017 Earnings
Guidance
Dollars in millions,
except EPS
Adjustments
Diluted Earnings
Per Share
Earnings per diluted share before MTM
pension adjustments (non-GAAP)5
$10.95 to $11.45
TNT Express integration and Outlook
restructuring program costs
$ 250
Income tax effect2
(63 ) Net of tax effect $ 187 0.69 TNT Express
intangible asset amortization $ 75
Income tax effect2
(19 ) Net of tax effect $ 56 0.21
Earnings per diluted share with
adjustments5
$11.85 to $12.35 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 costs were recognized at FedEx
Corporate ($30 million), FedEx Express ($18 million) and TNT
Express ($10 million). 5 – The year-end MTM pension
accounting adjustments, which are impracticable to calculate at
this time, are excluded.
The financial section of this release is provided on the
company's website at investors.fedex.com.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161220005810/en/
FedEx Corp.Media Contact:Jess Bunn, 901-818-7463orInvestor
Contact:Mickey Foster, 901-818-7468Home Page: fedex.com
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