FedEx Posts Drop in Q1 Profit, Decreases Forecast for Fiscal 2020

FedEx truck
FedEx reported its first-quarter income was $745 million, compared with $835 million a year ago. (TT file photo)

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FedEx Corp. reported lower results for the first quarter of fiscal 2020, citing a weakening global economy and increased costs to expand service into other business lines, including seven-day home delivery.

Because of trade tensions, FedEx is cutting its earnings forecast for fiscal 2020.

For the first quarter ended Aug. 31, Memphis, Tenn.-based FedEx reported net income was $745 million, or $2.84 per diluted share — slipping from $835 million, or $3.10, for the same period a year ago.



Operating income declined, to $977 million from $1.07 billion, primarily due to weakening global economic conditions, increased costs to expand service offerings and continued mix shift to lower-yielding services, officials said.

Revenue was flat at $17.05 billion.

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Smith

“Our performance continues to be negatively impacted by a weakening global macro environment driven by increasing trade tensions and policy uncertainty,” CEO Fred Smith said Sept. 17, adding “we are positioning FedEx to leverage future growth opportunities as we continue the integration of TNT Express, enhance FedEx Ground residential delivery capabilities and modernize the FedEx Express air fleet and hub operations.”

This year’s and last year’s first-quarter results have been adjusted for TNT Express integration expenses, which this year were $71 million, or 21 cents, compared with last year’s outlay of $121 million, or 36 cents.

Company officials told reporters and analysts on a conference call that the trade dispute between the United States and China has had an impact on business. The dispute, in addition to increased FedEx Ground costs and August’s loss of FedEx Ground business from Amazon.com, led it to lower its forecast for full-year earnings of $10-$12 per diluted share. That compares with the prior fiscal year earnings of $2.03 per share, or $15.52 on an adjusted basis.

The capital spending forecast remains $5.9 billion, up from $5.5 billion in fiscal 2019.

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Smith said the breakup with Amazon affected the financial results.

“While the Amazon contracts represented only a small proportion of our revenues, the nature of our business is such that near-term profits will be adversely affected since the last bit of volume has significant flow through to the bottom line.”

But analysts pushed back. Deutsche Bank’s Amit Mehrotra said management must clearly articulate a “credible path to better results.”

Still, company officials were upbeat.

“FedEx is implementing additional cost-reduction initiatives to mitigate the effects of macroeconomic uncertainty, including post-peak reductions to the global FedEx Express air network to better match capacity with demand,” said Alan Graf, chief financial officer at FedEx Corp.

Customers of FedEx Express, FedEx Ground and FedEx Home Delivery will see shipping rate increases and surcharges effective Jan. 6, increasing by an average of 4.9%. FedEx Freight shipping rates will increase by an average of 5.9%.

RELATED: FedEx announces rate hikes to take effect in January.

FedEx also said that for the third year in a row it will not apply additional residential surcharges during the holiday season, except for shipments that are oversized or that require additional handling.

FedEx ranks No. 2 on the Transport Topics Top 100 list of the largest for-hire carriers in North America.