FedEx Profits Grow 11% in Fiscal 2Q, Beating Wall Street Forecasts
FedEx Corp. announced profits jumped 11% in its fiscal second quarter, easily beating Wall Street forecasts.
The company earned $775 million in net income, or $2.84 per share, topping the Bloomberg News consensus estimates by 8 cents per share. One year ago, FedEx generated $700 million in profits or $2.59.
Revenues tallied $16.3 billion, up 9% from the $14.9 billion a year ago.
“Strategic execution by the FedEx team and a stronger global economy drove improved financial results, and we believe we are well-positioned for profitable long-term growth,” FedEx Chairman and CEO Fred Smith said in a conference call. “FedEx is on track for another record holiday shipping season, and we’re pleased to say the outstanding service around the world and across our portfolio during the second quarter has continued into December.”
Within the company, revenue and operating profits were higher than a year ago in every division.
For FedEx Freight, revenue climbed 10% to $1.8 billion, and operating profits surged 34% to $118 million. Within the less-than-truckload business, nearly 109,000 total average daily shipments marked a 4% increase from a year ago. Weight per shipment rose 3% to 1,187 pounds, and revenue per shipment increased 7% to $248.36.
“FedEx Freight stands out with tremendous growth in revenue and profitability as we benefit from disciplined pricing strategies and investments to improve safety and efficiency,” Chief Operating Officer Dave Bronczek said. “We expect this to continue and look for this segment to have one of its best years in over a decade.”
Total freight business, including domestic and international loads across the entire company, also were generally positive. Revenue per freight pound in the United States rose 8% to $1.29, handling nearly 8.5 million average daily freight pounds. International priority revenue per freight pound went up 12% to $1.56. International economy revenues per freight pound were 58 cents, up 9% from 53 cents a year ago. The International Airfreight unit reported revenues per freight pound of 71 cents, down 7% from 76 cents a year ago.
At the FedEx Express unit — the largest division — revenue climbed 8% to $9.4 billion, and operating income rose 2% to $717 million. Company executives credited the revenue growth to higher base rates, stronger demand for international shipping and higher fuel surcharges. They also noted that the Petya cyberattack hurt the bottom line in the TNT Express business in Europe.
The cyberattack dragged down overall results about 31 cents per share in the quarter and ultimately could cost investors about $1.10 per share. FedEx executives also noted that due to the breach, it’ll speed up the integration of TNT Express into the FedEx network because they believe it will offer better protection against future attacks.
“On the heels of the cyberattack, we’ve become much more aggressive about improving the security posture reliability and speeding up the integration of the technology platforms …We’re going very aggressively at moving the TNT enterprise to the more stable and reliable FedEx systems,” Executive Vice President Rob Carter said.
In the FedEx Ground segment, revenue and operating income both increased 12% to $4.93 billion and $521 million, respectively. Average daily package volume grew 7%.
“We’re starting to benefit from the cost-cutting measures we are implementing to address evolving business conditions,” Bronczek said. “We are improving revenue quality and reviewing long-term capital plans to balance capacity expansion with pricing and volume growth. From a service perspective, we are having the best peak ever at FedEx Ground.”
The executive team also devoted several portions of the earnings call to addressing congressional tax reform, touting the benefits it will provide to allow the company to reinvest in capital expenditures.
Chief Financial Officer Alan Graf estimated that the legislation would increase the company’s earnings per share by $4.40 to $5.50 before adjustments on the mark-to-market for the value of the pension fund. The mark-to-market rule requires companies to adjust the value of assets or liabilities based on the fair-market value at the end of the fiscal year.
“Any capital acceleration for FedEx would primarily be for replacement of equipment and technology,” Graf said. “If tax reform is enacted, we expect our uses of cash from tax savings would include optimizing CapEx to capture the benefits of 100% expensing to further grow the business and create even more upward mobility for our team members, funding our pension plans beyond our current forecast, increasing the dividend as our board may approve, continuing our stock repurchase program at our current modest levels and investing in M&A [mergers and acquisitions] where it makes sense.”