FedEx Plans Spending Increases, Offers Lackluster Outlook -- 2nd Update
June 21 2016 - 7:12PM
Dow Jones News
By Laura Stevens
It's going to be another expensive year for FedEx Corp., as the
delivery company again increases spending to accommodate growth in
e-commerce and to update its aircraft fleet.
The Memphis, Tenn., company said it would increase capital
spending for the year started June 1 by 6% to $5.1 billion. That
doesn't include the cost of incorporating and integrating its
recent acquisition of Dutch parcel firm TNT Express NV.
The additional spending has pressured margins in some of the
delivery giant's business segments, which drew questions from
analysts on a Tuesday earnings call with FedEx executives.
"We don't manage FedEx Corporation trying to maximize each
segment margin each year and if we did that, we would never be able
to take advantage of this broad portfolio and the cross selling
that's available to us," said Chief Executive Fred Smith. "It would
be wonderful if every year we could have maximum margins at all of
our operating companies, but that's just not realistic."
FedEx issued guidance for its current financial year,
forecasting adjusted earnings of $11.75 to $12.25 a share excluding
all effects from its acquisition of TNT. Analysts polled by Thomson
Reuters expected profit of $12.05 a share.
Shares fell 1.5% to $161.50 after hours, although the company's
adjusted per-share earnings and revenue beat expectations.
For the first time, FedEx executives revealed more details of
its acquisition of TNT Express, which the company has owned for 28
days. The executives said senior leadership had been installed at
TNT and so far the company expects capital spending of $100 million
related to the acquisition, along with integration costs of $200
million for fiscal 2017. The acquisition could start contributing
to FedEx profits by its fiscal 2018.
While it is too early to provide many details, executives said
FedEx's technology base already has been developed with the goal of
being able to integrate customers and products from acquisitions,
including those it has made previously. "This is our largest
acquisition, but certainly not our first," said Rob Carter, chief
information officer.
FedEx is continuing to spend heavily on ground operations to
accommodate e-commerce. Still, Mr. Smith said the Millennial
generation will keep shopping in stores, and e-commerce will never
eliminate brick-and-mortar retail. Instead, it will "change the
character of retail," he said. "It's going to be a long time before
retail is threatened."
FedEx Ground volumes grew by 10% in the quarter. Ground revenue
increased 20% to $4.29 billion, while operating income was up 9% to
$656 million.
Mr. Smith added that he is concerned about the positions of both
presidential candidates when it comes to trade. "I would say we
have a hard time putting up a list of the things that don't concern
us giving the two candidates' positions," Mr. Smith said.
"Obviously we are concerned about the anti-trade rhetoric, a lot of
the antibusiness positions and it's very worrisome. But hopefully,
after the election, cooler heads will prevail."
For the period ended May 31, FedEx reported a loss of $70
million, or 26 cents a share, compared with a year-earlier loss of
$895 million, or $3.16 a share. Excluding pension-accounting
adjustments, TNT acquisition- and integration-related expenses and
other items, adjusted per-share earnings rose to $3.30 from
$2.66.
Revenue increased 7.4% to $13 billion.
--Tess Stynes contributed to this article.
Write to Laura Stevens at laura.stevens@wsj.com
(END) Dow Jones Newswires
June 21, 2016 18:57 ET (22:57 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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