FedEx’s 4Q Helped by Rates, Cost Cuts
This story appears in the June 22 print edition of Transport Topics.
FedEx Corp. said net income was $753 million, or $2.66 per share, excluding one-time costs, for its fiscal fourth quarter ended May 31, reflecting stronger results at the Express, Ground and Freight units.
Profit, excluding taxes and interest, rose 12% at Express to $598 million despite a 4% drop in revenue to $6.7 billion. The Ground unit slightly boosted profit on that basis to $603 million from $601 million, reflecting a 19% rise in revenue to $3.57 billion. Freight’s profitability rose 5% to $137 million as revenue increased 1% to $1.57 billion.
The improvements were linked to higher rates and lower costs, such as fuel, while currency exchange rates and weather hurt the results, FedEx said in a statement.
Total revenue rose nearly 3% to $12.1 billion. Fiscal fourth-quarter 2014 net income also was $753 million, adjusted for one-time costs. Per-share earnings for 2015 of $2.54 were lower due to share repurchases.
Fourth-quarter results were affected by one-time costs for aircraft retirements, pension accounting and legal settlement costs. Including those factors, the net loss was $895 million, or $3.16.
Full-year net income, excluding the charges, was $2.57 billion, an improvement of 17%. Revenue rose 4% to $47.5 billion.
“Fiscal 2015 was a transformative year for FedEx, with outstanding financial results driving expanded long-term value for shareowners,” CEO Frederick Smith said in a June 17 statement. “Significant acquisitions announced in the year promise to strengthen our portfolio of services and change what’s possible for customers.”
The acquisitions include logistics operator Genco and the planned purchase of Dutch package and freight operator TNT N.V.
FedEx’s results did not include costs related to the TNT acquisition, now valued at about $5 billion. FedEx Executive Vice President Christine Richards said the purchase is proceeding as planned, with no expectation of regulatory problems.
UPS Inc., which has a higher European package market share, two years ago dropped a bid for TNT after encountering regulators’ competitive concerns.
Credit Suisse analyst Allison Landry said FedEx’s report signaled a commitment to Ground, its most profitable unit, as well as the potential gain from acquisitions.
FedEx will incorporate Smart Post into Ground on Sept. 1. The move, which will be facilitated by software enhancements, will consolidate delivery procedures for Smart Post and FedEx Home Delivery packages.
“Management expects the combination to boost efficiency, productivity and profits through the increased flexibility afforded, allowing FedEx to leverage the strengths of both the Ground and SmartPost networks,” Landry said.
Ground CEO Henry Maier said savings will grow in the second half of the fiscal year. FedEx has added $300 million to its capital budget for fiscal 2016 to pay for Ground unit projects, including capacity expansions.
FedEx projected earnings of $10.60 to $11.10 per share for fiscal 2016 year ending May 31. The comparable fiscal 2015 amount was $8.95 per share, signaling that earnings could rise as much as 24% on a year-to-year basis.
Chief Financial Officer Alan Graf said earnings improvement would be concentrated in the second half of the fiscal year.
Maier said the integration of Genco would lead to lower profits during a 12- to 18-month integration period. Genco added $329 million in fourth-quarter revenue, nearly 60% of Ground’s revenue growth.
“Freight also had a good quarter, despite a sluggish less-than-truckload environment,” Graf said.
Mike Ducker, CEO of FedEx Freight, outlined an active hiring program, primarily drivers, to match growing demand, which raised compensation costs.
“We are working hard to increase productivity,” he said. “The fundamentals are really sound in the business.”
Freight’s shipments per day in the fourth quarter were little changed. Revenue per 100 pounds of freight gained 1%. Priority shipments fell, but economy rose.
The pension accounting charge after-tax was $1.4 billion, with an additional $133 million to settle a driver-related court case and aircraft-related costs of $175 million.
The mandatory retirement age for directors was raised to 75 from 72, which could allow FedEx founder Smith, 71, to stay three more years.
