The FINANCIAL — FedEx Corp. on September 16 reported earnings of $2.42 per diluted share for the first quarter ended August 31, compared to adjusted earnings of $2.12 per diluted share a year ago. Without adjustment, FedEx earned $2.26 per diluted share last year.
“FedEx Corp. is performing solidly given weaker-than-expected economic conditions, especially in manufacturing and global trade,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer. “Our profit improvement program is on track and delivering impressive results, and I am very confident FedEx is well positioned to deliver value for shareowners, customers and team members in fiscal 2016 and beyond.”
Operating results rose compared to last year due to sharply increased operating income at FedEx Express, the benefit from one additional operating day at each of the company’s transportation segments and the continued positive impacts from the company’s profit improvement program. These benefits were partially offset by higher incentive compensation accruals, higher self-insurance reserves and operating costs at FedEx Ground, and lower-than-anticipated volume at FedEx Freight. Fuel had a slightly negative net impact to operating income. Costs related to the pending acquisition of TNT Express were immaterial during the quarter, according to FedEx.
During the quarter, the company acquired 1.1 million shares of FedEx common stock.
FedEx now projects adjusted earnings for fiscal 2016 to be $10.40 to $10.90 per diluted share before year-end mark-to-market pension accounting adjustments, aided by benefits from the profit improvement program. The outlook assumes moderate economic growth and does not include any operating results or costs related to TNT Express. The capital spending forecast for the fiscal year remains $4.6 billion.
“Our new fiscal 2016 outlook is modestly lower than our initial forecast due primarily to weaker LTL industry demand and higher than expected self-insurance reserves and operating costs at FedEx Ground,” said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer. “We still expect strong earnings growth this year, as we remain focused on executing our profit improvement program, leveraging e-commerce growth and enhancing our revenue quality.”
2016 Rate Increases
As announced on September 15, 2015, FedEx Express, FedEx Ground and FedEx Freight will increase shipping rates by an average of 4.9% effective January 4, 2016. FedEx is also increasing surcharges for FedEx Ground shipments that exceed the published maximum weight or dimensional limits, and updating certain fuel surcharge tables at FedEx Express and FedEx Ground effective November 2, 2015. Details of all changes to rates and surcharges are available at fedex.com/rates2016.
FedEx Express Segment
For the first quarter, the FedEx Express segment reported:
Revenue of $6.59 billion, down 4% from last year’s $6.86 billion
Operating income of $545 million, up 45% from $377 million a year ago
Operating margin of 8.3%, up from 5.5% the previous year
Revenue decreased 4% as lower fuel surcharges and unfavorable currency exchange rates more than offset improved base rates. U.S. domestic package volume grew by 1%, driven by growth in deferred box and overnight envelope. U.S. domestic revenue per package decreased 3% due to lower fuel surcharges, partially offset by strong base rates. FedEx International Economy volume grew 4%, while FedEx International Priority volume decreased 5%. International export revenue per package decreased 7%, as lower fuel surcharges and unfavorable currency exchange rates were partially offset by higher rates and improved package weights.
Operating income and margin improved due to higher base rates, the benefit from one additional operating day, and lower international expenses due to currency exchange rates, more than offsetting higher incentive compensation accruals. Profit improvement program initiatives continued to improve revenue quality and constrain expenses.
FedEx Ground Segment
For the first quarter, the FedEx Ground segment reported:
Revenue of $3.83 billion, up 29% from last year’s $2.96 billion
Operating income of $537 million, down 1% from $545 million a year ago
Operating margin of 14.0%, down from 18.4% the previous year
Revenue increased due to the inclusion of GENCO results, the recording of FedEx SmartPost service revenues on a gross basis versus the previous net treatment, and higher ground revenue per package and volume. FedEx Ground average daily volume, including FedEx SmartPost shipments, grew 4% in the first quarter due primarily to continued growth in FedEx Home Delivery. FedEx Ground yield increased 11% due to the recording of FedEx SmartPost revenues on a gross basis, higher dimensional weight charges and increased rates, partially offset by lower fuel surcharges.
Operating income decreased slightly due to increased self–insurance reserves, and higher-than-expected operating costs due in part to larger package sizes. These factors more than offset the benefits from higher revenue and one additional operating day. Operating margin decreased primarily due to increased self-insurance reserves, the inclusion of GENCO results and the change in FedEx SmartPost revenue reporting, which collectively reduced year-over-year operating margin by 4.0 percentage points.
FedEx Freight Segment
For the first quarter, the FedEx Freight segment reported:
Revenue of $1.60 billion, essentially flat with last year’s $1.61 billion
Operating income of $132 million, down 21% from $168 million a year ago
Operating margin of 8.2%, down from 10.4% the previous year
Less-than-truckload (LTL) average daily shipments declined 1% due to weak industry demand. LTL revenue per shipment was down 1% as higher rates from yield initiatives were more than offset by lower fuel surcharges.
Operating results declined primarily due to salaries and employee benefits expense outpacing lower-than-anticipated volume.
FedEx Corp. provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce and business services. With annual revenues of $48 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 325,000 team members to remain “absolutely, positively” focused on safety, the highest ethical and professional standards and the needs of their customers and communities.