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FedEx Newsroom

FedEx Corp. Reports Third Quarter Earnings

March 20, 2018

MEMPHIS, Tenn., March 20, 2018 … FedEx Corp. today reported the following consolidated results for the third quarter ended February 28 (adjusted measures exclude the items listed below for the applicable fiscal year):

 

Fiscal 2018Fiscal 2017
As Reported
(GAAP)
Adjusted
(non-GAAP)
As Reported
(GAAP)
Adjusted
(non-GAAP)
Revenue$16.5 billion$16.5 billion$15.0 billion$15.0 billion
Operating income$1.00 billion$1.11 billion$1.03 billion$1.10 billion
Operating margin6.1%6.7%6.8%7.4%
Net income$2.07 billion$1.02 billion$562 million$625 million
Diluted EPS$7.59$3.72$2.07$2.30

 

This year’s quarterly consolidated earnings have been adjusted to exclude the benefit of an estimated $1.15 billion reduction in the company’s net U.S. deferred tax liability attributable to the lower statutory rate enacted as part of the Tax Cuts and Jobs Act (TCJA). Additionally, this year’s and last year’s quarterly consolidated earnings have been adjusted for TNT Express integration expenses. The adjustments are as follows:

 

Impact per diluted shareThird Quarter
Fiscal 2018Fiscal 2017
Net U.S. deferred tax liability remeasurement($4.21)
TNT Express integration expenses0.340.23

 

“Execution of our long-term growth strategies, customer demand for the unique value of our broad portfolio of solutions and healthy growth in the global economy are driving our performance,” said Frederick W. Smith, FedEx Corp. chairman and chief executive officer. “We expect strong operating performance in each of our transportation segments in the fourth quarter.”

Operating results benefited from higher base rates, increased volume at FedEx Ground and FedEx Freight, and a favorable net impact from fuel. Results were negatively affected by significantly higher variable compensation accruals, increased peak-related costs at FedEx Express and the impact of adverse weather. Variable compensation increased in connection with the company’s pay actions that were announced following the passage of the TCJA. These variable compensation accruals include the year-to-date impact of the announced changes. TNT Express integration expenses were also higher.

Net results include a tax benefit of $1.53 billion ($5.60 per diluted share) attributable to the TCJA, which has three primary components:

  • A provisional benefit of $1.15 billion ($4.21 per diluted share) from the remeasurement of the company’s net U.S. deferred tax liability for lower tax rates;
  • A benefit of approximately $200 million ($0.75 per diluted share) from an incremental pension contribution made in February and deductible against the company’s prior year taxes at 35%; and
  • A benefit of approximately $170 million ($0.60 per diluted share) attributable to the phase-in of the reduced tax rate applied to the company’s year-to-date earnings.

 

Outlook

FedEx is unable to forecast the fiscal 2018 year-end mark-to-market (MTM) pension accounting adjustments. As a result, the company is unable to provide fiscal 2018 earnings-per-share guidance or projected fourth quarter fiscal 2018 consolidated operating income or margin on a GAAP basis.

Before year-end MTM pension accounting adjustments, earnings are now projected to be $17.90 to $18.30 per diluted share for fiscal 2018. The fiscal 2018 earnings forecast before year-end MTM pension accounting adjustments and excluding the estimate of the remeasurement of the company’s net U.S. deferred tax liability, expenses related to TNT Express integration and certain first quarter FedEx Trade Networks legal matters is now $15.00 to $15.40 per diluted share.

Before year-end MTM pension accounting adjustments, fourth quarter fiscal 2018 consolidated operating income and margin are projected to be $1.84 billion to $1.94 billion and 10.4% to 11.1%, respectively. Excluding year-end MTM pension accounting adjustments and TNT Express integration expenses, fourth quarter consolidated operating income and margin are projected to be $1.95 billion to $2.05 billion and 11.0% to 11.8%, respectively.

The projected fourth quarter fiscal 2018 operating margin for each transportation segment is as follows (the adjusted operating margin for the FedEx Express segment excludes TNT Express integration expenses):

 

Projected Fourth Quarter
Operating Margin
As Reported
(GAAP)
Adjusted
(non-GAAP)
FedEx Express segment9.1% to 9.6%9.9% to 10.4%
FedEx Ground segment17.0% to 17.5%N/A
FedEx Freight segment 8.0% to 9.0% N/A

 

These margin forecasts reflect the March 1, 2018 realignment of the company’s specialty logistics and e-commerce solutions into a new organizational structure within the FedEx Express segment. All of the above forecasts assume moderate economic growth.

The capital spending forecast for fiscal 2018 is now $5.8 billion, down $100 million from the prior forecast.

“We are increasing our fiscal 2018 earnings outlook due to foreign tax benefits from our international corporate structure, the benefits from U.S. tax reform and improved operating performance,” said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer. “We remain committed to improving operating income at the FedEx Express segment by $1.2 to $1.5 billion in fiscal 2020 versus fiscal 2017.”

 

FedEx Express Segment

For the third quarter, the FedEx Express segment reported (adjusted measures exclude TNT Express integration expenses):

 

Fiscal 2018Fiscal 2017
As Reported
(GAAP)
Adjusted
(non-GAAP)
As Reported
(GAAP)
Adjusted
(non-GAAP)
Revenue$9.37 billion$9.37 billion$8.57 billion$8.57 billion
Operating income$424 million$510 million$557 million$610 million
Operating income
YOY change %
(24%)(16%)
Operating margin4.5%5.4%6.5%7.1%

 

Revenue increased due to improved base rates, currency exchange rates and higher fuel surcharges, despite a lingering impact from the June cyberattack affecting TNT Express. Total package volume declined 1%, as lower international domestic and U.S. domestic volumes offset international export package volume growth of 1%. Average daily freight pounds increased 3% on higher volume in both international and U.S. freight services.

As-reported results during the quarter were primarily affected by the estimated impacts of:

  • Higher variable compensation accruals
  • Increased peak-related costs
  • Higher TNT Express integration expenses
  • Adverse weather
  • Unfavorable currency exchange rates
  • Favorable net fuel

Combined, these six factors negatively affected the segment’s year-over-year results by approximately $170 million.

 

FedEx Ground Segment

For the third quarter, the FedEx Ground segment reported:

 

Fiscal 2018Fiscal 2017Change
Revenue$5.22 billion$4.69 billion11%
Operating income$634 million$515 million23%
Operating margin12.1%11.0%1.1 pts

 

Strong revenue growth was driven by average daily package volume growth of 6% and higher base rates. During peak season, record volume was delivered with exceptional service through FedEx Ground’s highly automated and flexible network.

Operating results improved due to the benefits from strong revenue growth and ongoing cost management, partially offset by increased purchased transportation, seasonal staffing and network expansion costs as well as higher variable compensation accruals.

 

FedEx Freight Segment

For the third quarter, the FedEx Freight segment reported:

 

Fiscal 2018Fiscal 2017Change
Revenue$1.69 billion$1.49 billion14%
Operating income$55 million$41 million34%
Operating margin3.2%2.7%0.5 pts

 

Revenue increased due to less-than-truckload (LTL) revenue per shipment growth of 8% and average daily LTL shipment growth of 6%.

Operating results improved primarily due to the benefit from higher LTL revenue per shipment, partially offset by higher variable compensation accruals.

 

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 $64 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 425,000 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 2018 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 20, 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, a significant data breach or other disruption to our technology infrastructure, the ongoing impact of the June 27, 2017 cyberattack affecting TNT Express, our ability to successfully integrate the businesses and operations of FedEx Express and TNT Express in the expected time frame or at the expected cost, changes in fuel prices or currency exchange rates, our ability to match capacity to shifting volume levels, new U.S. domestic or international government regulation, future guidance and interpretations relating to the recently enacted TCJA and our ability to realize the benefits of certain provisions of the TCJA, our ability to effectively operate, integrate and leverage acquired businesses, our ability to achieve our FedEx Express segment profit improvement goal, legal challenges or changes related to owner-operators engaged by FedEx Ground and the drivers providing services on their behalf, disruptions or modifications in service by, or changes in the business or financial soundness 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.

RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO GAAP FINANCIAL MEASURES
Third Quarter Fiscal 2018 and Fiscal 2017 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 2018 and 2017 consolidated operating income and margin, net income and diluted earnings per share, and adjusted third quarter fiscal 2018 and 2017 FedEx Express segment operating income and margin. These financial measures have been adjusted to exclude the impact of the following items (as applicable):

  • Net U.S. deferred tax liability remeasurement; and
  • TNT Express integration expenses.

The provisional benefit from the remeasurement of our net U.S. deferred tax liability is excluded from our third quarter fiscal 2018 consolidated non-GAAP financial measures because it results from the non-recurring impact of a significant change in the U.S. federal statutory tax rate due to the enactment of the TCJA. The adjustment to our third quarter fiscal 2018 consolidated financial measures includes only this transitional impact. This provisional benefit is an estimate subject to adjustment during a 12-month measurement period.

We expect to incur significant expenses over the next few years in connection with our integration of TNT Express. We have adjusted our third quarter fiscal 2018 and 2017 consolidated financial measures and the FedEx Express segment third quarter fiscal 2018 and 2017 financial measures to exclude TNT Express integration expenses because we generally would not incur such expenses as part of our continuing operations. The integration expenses are 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 any restructuring charges at TNT Express.

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 2018 Earnings-Per-Share Guidance and Fourth Quarter Fiscal 2018 Operating Income and Margin Projections

Our fiscal 2018 earnings-per-share (“EPS”) guidance is a non-GAAP financial measure because it excludes the fiscal 2018 year-end MTM pension accounting adjustments, the provisional benefit from the remeasurement of our net U.S. deferred tax liability, projected fiscal 2018 TNT Express integration expenses (which include any restructuring charges at TNT Express), and charges related to certain first quarter FedEx Trade Networks legal matters.

Our projected fourth quarter fiscal 2018 consolidated operating income and margin are non-GAAP financial measures because they exclude the fiscal 2018 year-end MTM pension accounting adjustments and projected fourth quarter fiscal 2018 TNT Express integration expenses. Our projected fourth quarter fiscal 2018 FedEx Express segment operating margin is a non-GAAP financial measure because it excludes projected fourth quarter fiscal 2018 TNT Express integration expenses.

We have provided fiscal 2018 non-GAAP EPS guidance, projected fourth quarter fiscal 2018 non-GAAP consolidated operating income and margin and projected fourth quarter fiscal 2018 non-GAAP FedEx Express segment operating margin for the same reasons that were outlined above for historical non-GAAP measures. The fiscal 2018 year-end MTM pension accounting adjustments are excluded from our fiscal 2018 non-GAAP EPS guidance and projected fourth quarter fiscal 2018 consolidated operating income and margin because these non-cash items are unrelated to our core operating performance. Similarly, charges related to certain first quarter FedEx Trade Networks legal matters are excluded from our fiscal 2018 non-GAAP EPS guidance because they are unrelated to our core operating performance and to assist investors with assessing trends in our underlying business. The provisional benefit from the remeasurement of our net U.S. deferred tax liability is excluded from our fiscal 2018 non-GAAP EPS guidance for the same reason described above for historical non-GAAP measures. Projected fiscal 2018 TNT Express integration expenses are excluded from our fiscal 2018 non-GAAP EPS guidance, projected fourth quarter fiscal 2018 non-GAAP consolidated operating income and margin and FedEx Express segment operating margin for the same reasons described 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 fiscal 2018 non-GAAP EPS guidance or projected fourth quarter fiscal 2018 consolidated operating income or margin. For this reason, a full reconciliation of our fiscal 2018 non-GAAP EPS guidance and projected fourth quarter fiscal 2018 non-GAAP consolidated operating income and margin to the most directly comparable GAAP measures is impracticable. It is reasonably possible, however, that our fourth quarter fiscal 2018 MTM pension accounting adjustments could have a material impact on our full-year and fourth quarter fiscal 2018 consolidated financial results. The tables included below titled “Fiscal 2018 Earnings-Per-Share Outlook” and “Fourth Quarter Fiscal 2018 Outlook—FedEx Corporation” outline the impact of the items that are excluded from our fiscal 2018 non-GAAP EPS guidance and projected fourth quarter fiscal 2018 non-GAAP consolidated operating income and margin, other than the year-end MTM pension accounting adjustments.

 

Third Quarter Fiscal 2018

FedEx Corporation
Dollars in millions, except EPS
Operating
IncomeMargin
Income
Taxes1
   Net    
Income2
Diluted Earnings
Per Share
GAAP measure$1,0016.1%($1,200)$2,074$7.59
Net U.S. deferred tax liability remeasurement1,150(1,150)(4.21)
TNT Express integration expenses31060.6%14920.34
Non-GAAP measure$1,107  6.7%($36)$1,016$3.72
FedEx Express Segment
Dollars in millionsOperating
IncomeMargin
GAAP measure$4244.5%
TNT Express integration expenses860.9%
Non-GAAP measure$5105.4%

 

Third Quarter Fiscal 2017

FedEx Corporation
Dollars in millions, except EPS
Operating
IncomeMargin
Income
Taxes1
   Net    
Income2
   Diluted Earnings
Per Share
GAAP measure$1,0256.8%$337$562$2.07
TNT Express integration expenses3780.6%15630.23
Non-GAAP measure$1,1037.4%$352$625$2.30
FedEx Express Segment
Dollars in millionsOperating
IncomeMargin
GAAP measure$5576.5%
TNT Express integration expenses530.6%
Non-GAAP measure$6107.1%

 

Fiscal 2018 Earnings-Per-Share Outlook

Dollars in millions, except EPS
Adjustments
Diluted Earnings
Per Share
Earnings per diluted share before MTM pension accounting adjustments (non-GAAP)4$17.90 to $18.30
Net U.S. deferred tax liability remeasurement1($1,150)(4.21)
TNT Express integration expenses$450
   Income tax effect1(100)
   Net of tax effect$3501.29
FedEx Trade Networks legal matters$7
   Income tax effect1(2)
   Net of tax effect$50.02
Earnings per diluted share with
adjustments (non-GAAP)4
$15.00 to $15.40

 

Fourth Quarter Fiscal 2018 Outlook

FedEx Corporation
Dollars in millionsOperating
IncomeMargin
Operating results before MTM pension accounting adjustments (non-GAAP)4$1,840 to $1,94010.4% to 11.1%
TNT Express integration expenses31100.6% to 0.7%
Operating results excluding TNT Express integration expenses (non-GAAP)4$1,950 to $2,05011.0% to 11.8%
FedEx Express Segment
Operating Margin
GAAP measure9.1% to 9.6%
TNT Express integration expenses0.8%
Non-GAAP measure9.9% to 10.4%

 

Notes:

1Income taxes are based on the company’s approximate statutory tax rates, and for fiscal 2018, give consideration to the effects of the TCJA on the fiscal 2018 rates.
2Effect of “Total other (expense) income” on net income amount not shown.
3These expenses are recognized at FedEx Corporate and FedEx Express.
4The year-end MTM pension accounting adjustments, which are impracticable to calculate at this time, are excluded.

 

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