This year’s and last year’s quarterly consolidated earnings have been adjusted for:
Impact per diluted share Second Quarter
| Fiscal 2017 | Fiscal 2016 | |
| TNT Express integration and Outlook restructuring program costs |
$0.18 |
$ — |
| TNT Express intangible asset amortization |
0.03 |
— |
| FedEx Ground legal matters | — | 0.09 |
| TNT Express acquisition expenses | — | 0.04 |
“FedEx increased revenues and operating income despite continued low growth rates in the global economy. We are in the home stretch of our peak shipping season, and our service levels are high, thanks to the outstanding efforts of our hundreds of thousands of team members around the world,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer. “The integration of TNT Express into our broad portfolio of global business solutions is proceeding smoothly and according to plan.”
Second Quarter Results
FedEx Corp. reported the following consolidated results for the second quarter (adjusted measures exclude TNT Express integration and Outlook restructuring program costs and intangible asset amortization expense from this year’s results and expenses related to FedEx Ground legal matters and the TNT Express acquisition from last year’s results):
Fiscal 2017 Fiscal 2016
| As Reported
(GAAP) |
Adjusted
(non-GAAP) |
As Reported
(GAAP) |
Adjusted
(non-GAAP) |
||||
| Revenue | $14.9 billion | $14.9 billion | $12.5 billion | $12.5 billion | |||
| Operating income |
$1.17 billion |
$1.23 billion |
$1.14 billion |
$1.20 billion |
|||
| Operating margin |
7.8% |
8.3% |
9.1% |
9.6% |
|||
| Net income | $700 million | $757 million | $691 million | $729 million | |||
| Diluted EPS | $2.59 | $2.80 | $2.44 | $2.58 | |||
Operating income rose compared to last year primarily due to the inclusion of TNT Express and increased base rates and ongoing cost efficiencies at FedEx Express. These factors were partially offset by TNT Express integration and restructuring program costs and intangible asset amortization, and lower operating income at FedEx Ground and FedEx Freight.
A gain from the sale of an investment benefited the quarter’s results by $0.08 per diluted share. In addition, the adoption of a new accounting standard related to share-based payment transactions benefited the quarter’s results by $0.07 per diluted share.
Earnings Guidance
FedEx is unable to forecast the fiscal 2017 year-end mark-to-market (“MTM”) pension accounting adjustments. As a result, the company is unable to provide fiscal 2017 earnings guidance on a GAAP basis.
Before year-end MTM pension accounting adjustments, earnings for fiscal 2017 are now projected to be $10.95 to $11.45 per diluted share. This forecast includes TNT Express results and assumes moderate economic growth. The fiscal 2017 earnings forecast before year-end MTM pension accounting adjustments and excluding TNT Express integration and Outlook restructuring program costs and intangible asset amortization remains $11.85 to $12.35 per diluted share. The capital spending forecast for the fiscal year, which includes TNT Express, remains $5.6 billion.
“We are on track to achieve our fiscal 2017 earnings forecast, as we continue long-term investments in our networks,” said Alan B. Graf, FedEx Corp. executive vice president and chief financial officer. “While these network projects are impacting FedEx Ground’s near-term profitability, the investments will expand capacity, improve service and enhance long-term returns and cash flows.”
Executive Appointments
The Board of Directors of FedEx Corporation has approved the elections of Donald F. Colleran as Executive Vice President, Chief Sales Officer, and Rajesh Subramaniam as Executive Vice President, Chief Marketing and Communications Officer, effective January 1, 2017. Messrs. Colleran and Subramaniam also will become members of the FedEx Strategic Management Committee on that date.
FedEx Express Segment
For the second quarter, the FedEx Express segment reported (adjusted measures exclude TNT Express integration costs):
Fiscal 2017 Fiscal 2016
| As Reported
(GAAP) |
Adjusted
(non-GAAP) |
As Reported
(GAAP) |
||||
| Revenue | $6.74 billion | $6.74 billion | $6.59 billion | |||
| Operating income | $636 million | $654 million | $622 million | |||
| Operating income YOY change % |
2% |
5% |
||||
| Operating margin | 9.4% | 9.7% | 9.4% | |||
Revenue increased 2% due to increased base rates and higher package volume. U.S. domestic revenue per package increased 3% and U.S. freight revenue per pound increased 6%, both due to higher base rates. International export revenue per package increased 1% as higher base rates were partially offset by unfavorable currency exchange rates and lower fuel surcharges. International export average daily volume grew 2%, driven by growth in both FedEx International Priority® and FedEx International Economy®.
Operating results improved due to increased base rates and ongoing cost efficiencies. As-reported results include $18 million of TNT Express integration expenses. Fuel and currency exchange rates had a minimal impact on the quarter’s results.
TNT Express Segment
For the second quarter, the TNT Express segment reported (adjusted measures exclude TNT Express integration and Outlook restructuring program costs and intangible asset amortization expense):
Fiscal 2017
| As Reported
(GAAP) |
Adjusted
(non-GAAP) |
|||
| Revenue | $1.90 billion | $1.90 billion | ||
| Operating income | $70 million | $90 million | ||
| Operating margin | 3.7% | 4.7% | ||
As-reported results include $10 million of intangible asset amortization expense and $10 million of integration and Outlook restructuring program costs.
FedEx Ground Segment
For the second quarter, the FedEx Ground segment reported:
| Fiscal 2017 | Fiscal 2016 | Change | |
| Revenue | $4.42 billion | $4.05 billion | 9% |
| Operating income | $465 million | $526 million | (12%) |
| Operating margin | 10.5% | 13.0% | (2.5 pts) |
Revenue increased due to higher volume and yields. FedEx Ground average daily volume grew 5% in the second quarter, driven by e–commerce and commercial package growth. FedEx Ground yield increased 4% due to higher base rates.
Operating results decreased due to higher rent, depreciation and staffing as a result of network expansion, and increased purchased transportation rates.
FedEx Freight Segment
For the second quarter, the FedEx Freight segment reported:
| Fiscal 2017 | Fiscal 2016 | Change | |
| Revenue | $1.60 billion | $1.55 billion | 3% |
| Operating income | $88 million | $101 million | (13%) |
| Operating margin | 5.5% | 6.5% | (1.0 pts) |
Revenue increased 3% due to growth in less-than-truckload average daily shipments, partially offset by lower weight per shipment.
Operating results decreased due to the impact from lower average weight per shipment and higher information technology expenses.
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 $58 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 400,000 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.
