FedEx First-Quarter Earnings Climb 12.7%
This story appears in the Sept. 26 print edition of Transport Topics.
FedEx Corp. reported net income rose 12.7%, excluding one-time costs, for the first quarter of fiscal 2017 compared with the same period a year ago.
The earnings, excluding charges, were $780 million, or $2.90 per share, in the period ended Aug. 31. But costs related to the acquisition of Dutch firm TNT N.V., completed in May, drove down the adjusted net earnings to $715 million, or $2.65, which still is a 3.3% increase year-over-year, the company announced Sept. 20.
The results beat analysts’ estimates by 10 cents, according to Bloomberg News.
“Managing our operating companies as a portfolio of customer solutions helped FedEx achieve strong financial and operating results in the quarter, especially given the global economy’s continued low growth,” CEO Fred Smith said.
But on a call with analysts, FedEx focused most of its comments on TNT Express. The company reported $48 million in expenses related to the acquisition, consisting of amortization, integration and restructuring costs, producing an operating loss of $14 million in the segment.
Chief Financial Officer Alan Graf added that the acquisition will reduce overall earnings for the remainder of the fiscal year but is expected to be profitable in fiscal 2018.
“In the U.S. and Canada, we are transitioning TNT’s volume, formerly handled by third-party carriers, into the FedEx portfolio. In late September, we will begin consolidating depots, and we’ll begin transitioning customers in October. We will complete the U.S. and Canada transition by the end of fiscal year 2017,” he said, adding that integration costs are expected to be between $700 million and $800 million over the next four years.
Revenue at FedEx rose to $14.7 billion from $12.3 billion, a 19% jump year-over-year, including a $460 million increase, or 12%, from the FedEx Ground segment. Express revenue was $6.7 billion, a 1% increase. Freight revenue rose $57 million, or 4% year-over-year.
Earnings before tax and interest rose to $1.26 billion, up 10% from the $1.14 billion it reported a year ago. By segment, FedEx Express reported earnings of $624 million, while FedEx Ground posted $610 million, both 14% increases year-over-year. FedEx Freight reported $135 million in profits, a 2% increase.
The Memphis, Tennessee-based company also announced that it has invested $2 billion in upgrading the Ground segment to satisfy the growing e-commerce sector, which particularly bustles during the holiday season.
FedEx announced it’ll hire more than 50,000 seasonal employees for the upcoming holiday season. Rival UPS Inc. announced Sept. 14 that it plans to hire about 95,000 seasonal employees to handle the additional packages.
Analyst John Barnes with RBC Capital Markets wrote in a note to investors that FedEx is managing the core business well.
“We also like the decision to heavily reinvest in the Ground network due to its high growth and return profile. Our sense is that the company is in good shape for peak season,” he said.
“FedEx showed that e-commerce growth, while bad for some, is [still] good for them,” said David Ross, an analyst at Stifel, Nicolaus & Co. “It is one of the few companies with improving density, pricing power and industry volume growth.”
The number of packages sent per day increased in all segments. Ground daily shipments increased 10% year-over-year. Express reported a 1% increase in the United States and internationally, and the Freight unit reported less-than-truckload shipments grew 8%, offsetting drops in the per-shipment revenue and weight between 3% and 4%.
Meanwhile, the company updated its fiscal-year earnings projections to a range of $11.85 to $12.35 per share.
Capital spending forecast for the fiscal year remains $5.6 billion, according to the package delivery company.
FedEx ranks No. 2 on the Transport Topics Top 100 list of the largest for-hire carriers in the United States and Canada. UPS Inc. tops the list.
