FedEx Corp. Reports Second Quarter Results
MEMPHIS, Tenn., December 17, 2019 … FedEx Corp. today reported the following consolidated results for the second quarter ended November 30 (adjusted measures exclude the items listed below for the applicable fiscal year):
|Fiscal 2020||Fiscal 2019|
|Revenue||$17.3 billion||$17.3 billion||$17.8 billion||$17.8 billion|
|Operating income||$554 million||$684 million||$1.17 billion||$1.33 billion|
|Net income||$560 million||$660 million||$935 million||$1.08 billion|
This year’s and last year’s quarterly consolidated results have been adjusted for:
|Impact per diluted share|
|Fiscal 2020||Fiscal 2019|
|TNT Express integration expenses||$0.19||$0.34|
|Aircraft impairment charges||0.19||—|
|FedEx Ground legal matter||—||0.17|
|Net U.S. deferred tax liability remeasurement||—||0.02|
“Fiscal 2020 is a year of continued significant challenges and changes for FedEx, particularly in the quarter just ended due to the compressed shipping season,” said Frederick W. Smith, FedEx Corp. chairman and chief executive officer. “We have significantly enhanced our e-commerce capabilities with strategic initiatives including year-round seven-day FedEx Ground delivery, enhanced large package capabilities and the insourcing of FedEx SmartPost packages. These changes have been well-received by the marketplace as reflected in our record volumes this peak season. While we have experienced some higher-than-expected expenses this quarter, we forecast FedEx Ground operating margins to rebound to the teens in our fiscal fourth quarter as the bow wave of costs for these changes is absorbed.”
“Thanks to over 490,000 FedEx team members for their hard work and dedication to our Purple Promise of making every FedEx experience outstanding.”
Operating results declined due to weak global economic conditions, increased FedEx Ground costs from expanded service offerings, the loss of business from a large customer, a continuing mix shift to lower-yielding services and a more competitive pricing environment. In addition, the later timing of the Thanksgiving holiday resulted in the shifting of Cyber Week into December, which negatively impacted the quarter’s results. These factors were partially offset by lower variable incentive compensation expenses and increased yields at FedEx Freight. Net income includes a tax benefit of $133 million ($0.51 per diluted share) from the recognition of certain foreign tax loss carryforwards.
FedEx Express recorded asset impairment charges of $66 million ($50 million, net of tax, or $0.19 per diluted share) related to the permanent retirement of 10 Airbus A310-300 aircraft and 12 related engines. During the remainder of fiscal 2020, FedEx Express will make further network capacity changes by reducing flight hours. The company continues to evaluate if additional aircraft retirements are warranted.
“Our strategies are clear: To develop the premier e-commerce portfolio in the U.S., improve international profitability, enhance our market-leading revenue quality and continue to optimize our U.S. and international networks,” said Rajesh Subramaniam, FedEx Corp. president and chief operating officer. “We are also taking immediate actions to address the short-term challenges facing our business, including eliminating multiple international flights to reflect reduced global air freight demand. These actions combined with benefits from the TNT integration should allow FedEx Express to enter fiscal 2021 with profit improvement underway.”
FedEx is unable to forecast the fiscal 2020 year-end mark-to-market (MTM) retirement plan accounting adjustment. As a result, the company is unable to provide a fiscal 2020 earnings per share or effective tax rate (ETR) outlook on a GAAP basis.
FedEx now forecasts fiscal 2020 earnings of $9.10 to $10.35 per diluted share before the year-end MTM retirement plan accounting adjustment, and earnings of $10.25 to $11.50 per diluted share before the year-end MTM retirement plan accounting adjustment and excluding TNT Express integration expenses and aircraft impairment charges. The company’s ETR is now expected to be 23% to 26% before the year-end MTM retirement plan accounting adjustment. The capital spending forecast remains $5.9 billion.
“Our revised guidance reflects lower-than-expected revenue at each of our transportation segments and higher-than-expected expenses driven by continued mix shift to residential delivery services,” said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer. “In response, we are implementing reductions to the global FedEx Express air network to better match capacity with demand. We are also further restricting hiring and pursuing opportunities to optimize our networks, including investments in technology aimed at improving our productivity and lowering our costs.”
These forecasts assume moderate U.S. economic growth, the company’s current fuel price expectations, no further weakening in international economic conditions from the company’s current forecast and no additional adverse developments in international trade policies and relations. FedEx’s ETR and earnings per share outlooks are based on the company’s current interpretations of the Tax Cuts and Jobs Act (TCJA) and related regulations and guidance, and are subject to change based on future guidance, as well as FedEx’s ability to defend its interpretations.
FedEx Corp. (NYSE: FDX) provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce and business services. With annual revenues of $69 billion, the company offers integrated business solutions 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 490,000 team members to remain 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 and Statistical Books. These materials, as well as a webcast of the earnings release conference call to be held at 5:30 p.m. EST on December 17, 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; anti-trade measures and additional changes in international trade policies and relations; a significant data breach or other disruption to our technology infrastructure; our ability to successfully integrate the businesses and operations of FedEx Express and TNT Express in the expected time frame and at the expected cost and to achieve the expected benefits from the combined businesses; our ability to successfully implement our business strategy and effectively respond to changes in market dynamics; the impact of the United Kingdom’s expected withdrawal from the European Union and the terms of its withdrawal if it ultimately occurs; our ability to match capacity to shifting volume levels; changes in fuel prices or currency exchange rates; the impact of intense competition; evolving or new U.S. domestic or international government regulation or regulatory actions; future guidance, regulations, interpretations or challenges to our tax positions relating to the TCJA and our ability to defend our interpretations of the TCJA; our ability to effectively operate, integrate, leverage and grow acquired businesses; legal challenges or changes related to service providers 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 of any international conflicts or terrorist activities; our ability to quickly and effectively restore operations following adverse weather or a localized disaster or disturbance in a key geography; 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
Second Quarter Fiscal 2020 and Fiscal 2019 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 second quarter fiscal 2020 and 2019 consolidated operating income and margin, net income and diluted earnings per share, and adjusted second quarter fiscal 2020 and 2019 FedEx Express segment operating income and margin. These financial measures have been adjusted to exclude the impact of the following items (as applicable):
• TNT Express integration expenses incurred in fiscal 2020 and 2019;
• Fiscal 2020 aircraft impairment charges;
• Fiscal 2019 charges related to a legal matter involving FedEx Ground; and
• The fiscal 2019 revision to the net U.S. deferred tax liability remeasurement included in our fiscal 2018 earnings.
We have incurred and expect to incur significant expenses through fiscal 2021, and may incur additional expenses thereafter, in connection with our integration of TNT Express. We have adjusted our second quarter fiscal 2020 and 2019 consolidated financial measures and the FedEx Express segment second quarter fiscal 2020 and 2019 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 predominantly incremental costs directly associated with the integration of TNT Express, including professional and legal fees, salaries and employee benefits, travel and advertising expenses. Internal salaries and employee benefits 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.
The aircraft impairment charges and charges related to the settlement of a legal matter involving FedEx Ground are excluded from our second quarter fiscal 2020 and 2019 consolidated non-GAAP financial measures and FedEx Express segment non-GAAP financial measures, as applicable, because they are unrelated to our core operating performance and to assist investors with assessing trends in our underlying businesses.
The fiscal 2019 revision to the provisional benefit from the remeasurement of our net U.S. deferred tax liability as of the date of the enactment of the Tax Cuts and Jobs Act (TCJA) is excluded from our second quarter fiscal 2019 consolidated non-GAAP financial measures because the provisional benefit resulted from the non-recurring impact of a significant change in the U.S. federal statutory income tax rate due to the enactment of the TCJA on our overall deferred tax position, which accumulated over many reporting periods prior to enactment. The adjustment to our second quarter fiscal 2019 consolidated financial measures includes only a revision to this transitional impact.
As previously disclosed, the provisional benefit from the remeasurement of our net U.S. deferred tax liability included in our fiscal 2018 earnings was an estimate subject to adjustment during a 12-month measurement period ending in fiscal 2019. The exclusion of adjustments to this provisional benefit from our second quarter fiscal 2019 non-GAAP earnings measures is consistent with our presentation of the effects of the initial provisional benefit in our fiscal 2018 non-GAAP earnings measures. We have not included the tax benefit from the recognition of certain tax loss carryforwards in the second quarter fiscal 2020 adjustment because the benefit resulted from operational changes in a foreign jurisdiction.
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 financial 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 Securities and Exchange Commission rules, the tables below present a reconciliation of our presented non-GAAP financial measures to the most directly comparable GAAP measures.
Fiscal 2020 Earnings Per Share and Effective Tax Rate Forecasts
Our fiscal 2020 earnings per share (EPS) forecast is a non-GAAP financial measure because it excludes the fiscal 2020 year-end mark-to-market (MTM) retirement plan accounting adjustment, estimated fiscal 2020 TNT Express integration expenses, and aircraft impairment charges. Our fiscal 2020 effective tax rate (ETR) forecast is a non-GAAP financial measure because it excludes the impact of the fiscal 2020 year-end MTM retirement plan accounting adjustment.
We have provided these non-GAAP financial measures for the same reasons that were outlined above for historical non-GAAP measures. The fiscal 2020 year-end MTM retirement plan accounting adjustment is excluded from our fiscal 2020 EPS and ETR forecasts because it is unrelated to our core operating performance and to assist investors with assessing trends in our underlying businesses. Estimated fiscal 2020 TNT Express integration expenses and the aircraft impairment charges are excluded from our fiscal 2020 EPS forecast for the same reasons described above for historical non-GAAP measures.
We are unable to predict the amount of the year-end MTM retirement plan accounting adjustment, as it is significantly impacted by changes in interest rates and the financial markets, so such adjustment is not included in our fiscal 2020 EPS and ETR forecasts. For this reason, a full reconciliation of our fiscal 2020 EPS and ETR forecasts to the most directly comparable GAAP measures is impracticable. It is reasonably possible, however, that our fiscal 2020 year-end MTM retirement plan accounting adjustment could have a material impact on our fiscal 2020 consolidated financial results and ETR.
The table included below titled “Fiscal 2020 Earnings Per Share Forecast” outlines the impacts of the items that are excluded from our fiscal 2020 EPS forecast, other than the year-end MTM retirement plan accounting adjustment.
Second Quarter Fiscal 2020
|Dollars in millions, except EPS|
|TNT Express integration expenses4||64||0.4%||14||50||0.19|
|Aircraft impairment charges||66||0.4%||16||50||0.19|
FedEx Express Segment
|Dollars in millions|
|TNT Express integration expenses||49||0.5%|
|Aircraft impairment charges||66||0.7%|
Second Quarter Fiscal 2019
|Dollars in millions, except EPS|
|TNT Express integration expenses4||114||0.6%||24||90||0.34|
|FedEx Ground legal matter||46||0.3%||—||46||0.17|
|Net U.S. deferred tax liability remeasurement||—||—||(4)||4||0.02|
FedEx Express Segment
|Dollars in millions|
|TNT Express integration expenses||99||1.0%|
Fiscal 2020 Earnings Per Share Forecast
|Dollars in millions, except EPS|
|Earnings per diluted share before year-end MTM retirement plan accounting adjustment (non-GAAP)5||$9.10 to $10.35|
|TNT Express integration expenses||$325|
|Income tax effect2||(72)|
|Net of tax effect||$253||0.96|
|Aircraft impairment charges||$66|
|Income tax effect2||(16)|
|Net of tax effect||$50||0.19|
|Earnings per diluted share with adjustments5||$10.25 to $11.50|
|1||–||Does not sum to total due to rounding.|
|2||–||Income taxes are based on the company’s approximate statutory tax rates applicable to each transaction.|
|3||–||Effect of “total other (expense) income” on net income amount not shown.|
|4||–||These expenses, including restructuring charges, were recognized at FedEx Corporate and FedEx Express.|
|5||–||The year-end MTM retirement plan accounting adjustment, which is impracticable to calculate at this time, is excluded.|