FDX FedEx Corp

By Mike Esterl 

FedEx Corp. said revenue and operating margins rose at its key express and ground units in its fiscal first quarter and predicted that income also would rise for the year despite being dragged down by newly acquired TNT Express NV.

The Memphis, Tenn., delivery giant also said Tuesday it expects another record shipping season during the peak holiday period, lifted by e-commerce, even as it scaled back its broader economic growth outlook.

FedEx reported Tuesday revenue in the quarter ended Aug. 31 rose to $14.7 billion from $12.3 billion a year earlier, aided in part by Dutch parcel delivery company TNT, which it acquired in May.

Net income rose to $715 million, or $2.65 a share, from $692 million, or $2.42 a share, in the year-earlier quarter.

FedEx estimated adjusted earnings for fiscal 2017 would see a negative effect of $1 a share from its nearly $5 billion acquisition of TNT, its biggest takeover to date. But it still expects adjusted earnings to be $10.85 to $11.35 a share including TNT, compared with $10.80 in fiscal 2016 without TNT.

Fred Smith, FedEx's chief executive, said during an earnings call with analysts that TNT's integration was proceeding "smoothly." Chief Financial Officer Alan Graf cautioned the integration would take four years, at an aggregate cost of $700 million to $800 million, but that TNT would boost FedEx's earnings by fiscal 2018.

FedEx shares were 2.7% higher at $167.05 in after-hours trading on the New York Stock Exchange.

The company said it plans to hire more than 50,000 seasonal workers for the peak holiday shopping season. Last year, it hired 55,000.

"We expect each of the four Mondays during the upcoming peak period to be among the busiest in our corporate history," Michael Glenn, head of market development, told analysts.

There is growing online demand to ship everything from "large-screen TVs to mattresses and trampolines," Mr. Glenn added.

The surge in e-commerce is in contrast to a more subdued overall economy. FedEx expects U.S. gross domestic product to expand 1.6% this year, down from its earlier 1.8% forecast. It expects global GDP to expand 2.2%, compared with 2.3% earlier.

Operating margins at its express unit rose to 9.4% from 8.3% in the year-earlier quarter, boosted by higher yields with a 1% rise in domestic and international package volume.

Margins at the company's smaller ground unit inched higher to 14.2% from 14.0%. Volume grew 10%, lifted by growing e-commerce.

Revenue at TNT totaled $1.80 billion, with an operating loss of $14 million.

FedEx said costs from TNT's integration and restructuring program dented earnings by 17 cents a share, while an intangible asset amortization expense for TNT shaved another 8 cents off per-share profit.

Excluding those items, adjusted per-share earnings rose to $2.90 a share. Analysts polled by Thomson Reuters had projected adjusted per-share profit of $2.81 on $14.61 billion in revenue.

FedEx said annual synergies related to the TNT deal should total $750 million starting in fiscal 2020. FedEx acquired the Dutch company to expand its ground network in Europe.

One analyst, David Ross at Stifel Nicolaus, questioned during the earnings call why FedEx was buying back stock rather than paying down debt.

Mr. Graf, the CFO, said FedEx is committed to improving its debt profile but will continue to buy back stock, increase dividends and invest in the business. That's because management sees healthy growth potential and believes the company's share price is undervalued, he added.

FedEx reiterated it plans to make $5.6 billion in capital expenditures in fiscal 2017, or nearly 10% of revenue. Much of the money is earmarked for expanding its ground network to capitalize on rising e-commerce demand and modernizing its air fleet to become more efficient. Still, Mr. Graf said capital expenditures should drop to 6% to 8% of revenue longer term.

FedEx's ratio of total debt to earnings before interest, taxes, depreciation and amortization is 1.8, according to S&P Capital IQ.

--Anne Steele contributed to this article.

Write to Mike Esterl at mike.esterl@wsj.com

(END) Dow Jones Newswires

September 20, 2016 20:50 ET (00:50 GMT)

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