FedEx Corp. (NYSE: FDX) today reported earnings of $2.07 per
diluted share ($2.35 per diluted share on an adjusted basis) for
the third quarter ended February 28, compared to earnings of $1.84
per diluted share a year ago ($2.51 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
Third
Quarter
Fiscal 2017 Fiscal
2016 TNT Express integration expenses $ 0.23 $ — TNT
Express intangible asset amortization
0.05
—
Legal matters — 0.61 TNT Express acquisition expenses — 0.06
“Our worldwide FedEx team delivered an outstanding peak season.
Even with our highest volumes ever, we achieved record service
levels,” said Frederick W. Smith, FedEx Corp. chairman and chief
executive officer. “We are confident our strategic investments to
expand our global scope and portfolio of solutions position FedEx
for greater long-term profitable growth as we adapt to meet the
evolving needs of our customers.”
Third Quarter Results
FedEx Corp. reported the following consolidated results for the
third quarter (adjusted measures exclude TNT Express integration
expenses, which include restructuring charges at TNT Express, and
intangible asset amortization expense from this year’s results and
expenses related to FedEx Ground and FedEx Trade Networks 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 $15.0 billion $15.0 billion $12.7 billion $12.7 billion
Operating income
$1.03 billion
$1.12 billion
$864 million
$1.16 billion
Operating margin
6.8%
7.5%
6.8%
9.2%
Net income $562 million $638 million $507 million $692 million
Diluted EPS $2.07 $2.35 $1.84 $2.51
Operating results were impacted by the significantly negative
net impact of fuel and one fewer operating day at FedEx Express and
FedEx Ground, and network expansion at FedEx Ground. These factors
were partially offset by the benefits from yield growth at all of
the company’s transportation segments.
Outlook
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 are
now projected to be $10.80 to $11.30 per diluted share for fiscal
2017. This forecast includes TNT Express results and assumes
moderate economic growth. The earnings forecast before year-end MTM
pension accounting adjustments and excluding TNT Express
integration expenses, including restructuring charges, and
intangible asset amortization remains $11.85 to $12.35 per diluted
share for fiscal 2017. The capital spending forecast for the fiscal
year is now $5.3 billion, down $300 million, due to a reduced FedEx
Ground spending forecast.
The company is targeting operating income improvement at the
FedEx Express group of $1.2 billion to $1.5 billion in fiscal 2020
versus fiscal 2017, assuming moderate economic growth and current
accounting and tax rules. The operating income target includes
expected TNT Express synergies as well as base business and other
operational improvements across the global FedEx Express
network.
“During the next three years, the benefits of the TNT Express
integration, fleet modernization, yield management, e-commerce
growth and investments in network capabilities and efficiency will
drive significant earnings growth,” said Alan B. Graf, Jr., FedEx
Corp. executive vice president and chief financial officer.
FedEx Express Segment
For the third quarter, the FedEx Express
segment reported (adjusted measures exclude TNT Express integration
expenses):
Fiscal
2017
Fiscal
2016
As
Reported(GAAP)
Adjusted(non-GAAP)
As
Reported(GAAP)
Revenue $6.78 billion $6.78 billion $6.56 billion Operating income
$555 million $586 million $595 million Operating income YOY change
%
(7%)
(2%)
Operating margin 8.2% 8.6% 9.1%
Revenue increased 3% as higher base rates and package volume
were partially offset by the negative impact from one fewer
operating day.
Operating income declined due to the significantly negative net
impact of fuel and one fewer operating day. As-reported results
include $31 million of expenses related to the integration of TNT
Express.
TNT Express Segment
For the third quarter, the TNT Express segment
reported (adjusted measures exclude TNT Express integration
expenses, including restructuring charges, and intangible asset
amortization expense):
Fiscal
2017
As
Reported(GAAP)
Adjusted(non-GAAP)
Revenue $1.79 billion $1.79 billion Operating income $2 million $40
million Operating margin 0.1% 2.2%
The TNT Express as-reported results include $16 million of
intangible asset amortization expense and $22 million of
integration expenses, including restructuring charges.
FedEx Ground Segment
For the third quarter, the FedEx Ground segment
reported:
Fiscal 2017
Fiscal 2016
Change Revenue $4.69 billion $4.41 billion 6%
Operating income $515 million $557 million (8%) Operating margin
11.0% 12.6% (1.6 pts)
Revenue increased as higher base rates and commercial volume
growth were partially offset by lower residential volume, driven by
yield management actions, and the negative impact from one fewer
operating day.
Operating results decreased due to higher rent, depreciation and
staffing as a result of network expansion, the negative net fuel
impact and one fewer operating day.
FedEx Freight Segment
For the third quarter, the FedEx Freight
segment reported:
Fiscal 2017
Fiscal 2016
Change Revenue $1.49 billion $1.45 billion 3%
Operating income $41 million $56 million (27%) Operating margin
2.7% 3.9% (1.2 pts)
Revenue increased due to higher base rates and fuel surcharges.
Average daily shipments were flat as the company focuses on revenue
quality in a continued weak U.S. industrial environment.
Operating results decreased due to the impact from higher
salaries and wages and increased 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 third 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. EDT on March 21,
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, changes in fuel prices or
currency exchange rates, a significant data breach or other
disruption to our technology infrastructure, 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.
The financial section of this release is provided on the
company’s website at investors.fedex.com.
RECONCILIATIONS OF NON-GAAP FINANCIAL
MEASURESTO GAAP FINANCIAL MEASURES
Third 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 third quarter fiscal 2017 and 2016 consolidated operating
income and margin, net income and diluted earnings per share, and
adjusted third 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 expenses;
- TNT Express intangible asset
amortization;
- Expenses in connection with the
settlement of (and certain expected losses related to) independent
contractor litigation matters involving FedEx Ground, net of
recognized insurance recovery;
- Expenses in connection with the
settlement of a U.S. Customs and Border Protection matter involving
FedEx Trade Networks, net of recognized insurance recovery;
and
- TNT Express acquisition expenses.
We expect to incur significant expenses over the next few years
in connection with our integration of TNT Express. We have adjusted
the applicable fiscal 2017 third 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
integration expenses also include restructuring charges at TNT
Express.
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 third quarter
non-GAAP 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, continues to be preliminary and
will likely change in the fourth quarter, perhaps significantly, as
additional information concerning the fair value estimates of the
assets acquired and liabilities assumed as of the acquisition date
is obtained during the remainder of the fiscal year. We will
complete our purchase price allocation during the fourth quarter of
fiscal 2017.
The litigation-related matters are excluded from our fiscal 2016
third quarter non-GAAP 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 third quarter non-GAAP 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 expenses, including restructuring charges at TNT
Express, 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.
Third Quarter Fiscal
2017
FedEx
Corporation
Diluted
Dollars in millions, except EPS
Operating
Income
Net
Earnings
Income
Margin1
Taxes2
Income3
Per Share
GAAP measure $ 1,025 6.8 %
$ 337 $ 562 $ 2.07 TNT
Express integration expenses4
78
0.5
%
15
63
0.23
TNT Express intangible asset amortization
16
0.1
%
3
13
0.05
Non-GAAP measure $ 1,119 7.5 % $ 355 $ 638 $ 2.35
Third Quarter Fiscal
2017
FedEx Express
Segment
Dollars in millions
Operating
Income
Margin1
GAAP measure $ 555 8.2 % TNT
Express integration expenses
31
0.5 % Non-GAAP measure $ 586 8.6 %
TNT Express
Segment
Dollars in millions
Operating
Income
Margin
GAAP measure $ 2 0.1 % TNT
Express integration expenses 22 1.2 % TNT Express intangible asset
amortization
16 0.9 %
Non-GAAP measure $ 40 2.2 %
Third Quarter Fiscal
2016
FedEx
Corporation
Diluted
Dollars in millions, except EPS
Operating
Income
Net
Earnings
Income
Margin1
Taxes1,2
Income1,3
Per Share
GAAP measure $ 864 6.8 %
$ 275 $ 507 $ 1.84 FedEx
Ground legal matters5
204
1.6
%
78
126
0.46
FedEx Trade Networks legal matter5
69
0.5
%
26
43
0.15
TNT Express acquisition expenses
23
0.2
%
8
15
0.06
Non-GAAP measure $ 1,160 9.2 % $ 388 $ 692 $ 2.51
Fiscal 2017 Earnings
Guidance
Dollars in millions, except EPS
Adjustments
Diluted EarningsPer
Share
Earnings per diluted share before MTM pension adjustments
(non-GAAP)6
$10.80 to $11.30
TNT Express integration expenses $300
Income tax effect2
(72) Net of tax effect $228 0.84 TNT Express intangible asset
amortization $75
Income tax effect2
(17) Net of tax effect $ 58 0.21 Earnings per diluted share with
adjustments6
$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 expenses, including restructuring
charges at TNT Express, were recognized at FedEx Corporate ($25
million), FedEx Express ($31 million) and TNT Express ($22
million).
5 – Net of recognized insurance recovery. 6 – The
year-end MTM pension accounting adjustments, which are
impracticable to calculate at this time, are excluded.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170321006251/en/
FedEx Corp.Media Contact:Jess Bunn, 901-818-7463orInvestor
Contact:Mickey Foster, 901-818-7468Home Page: fedex.com
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