Revenue and margins increase at key units; delivery giant
expects strong holiday season
By Mike Esterl
FedEx Corp. said revenue and operating margins rose at its key
express and ground units in its fiscal first quarter and predicted
that income also would rise for the year despite being dragged down
by newly acquired TNT Express NV.
The Memphis, Tenn., delivery giant also said Tuesday it expects
another record shipping season during the peak holiday period,
lifted by e-commerce, even as it scaled back its broader economic
growth outlook.
FedEx reported Tuesday revenue in the quarter ended Aug. 31 rose
to $14.7 billion from $12.3 billion a year earlier, aided in part
by Dutch parcel delivery company TNT, which it acquired in May.
Net income rose to $715 million, or $2.65 a share, from $692
million, or $2.42 a share, in the year-earlier quarter.
FedEx estimated adjusted earnings for fiscal 2017 would see a
negative effect of $1 a share from its nearly $5 billion
acquisition of TNT, its biggest takeover to date. But it still
expects adjusted earnings to be $10.85 to $11.35 a share including
TNT, compared with $10.80 in fiscal 2016 without TNT.
Fred Smith, FedEx's chief executive, said during an earnings
call with analysts that TNT's integration was proceeding
"smoothly." Chief Financial Officer Alan Graf cautioned the
integration would take four years, at an aggregate cost of $700
million to $800 million, but that TNT would boost FedEx's earnings
by fiscal 2018.
FedEx shares were 2.7% higher at $167.05 in after-hours trading
on the New York Stock Exchange.
The company said it plans to hire more than 50,000 seasonal
workers for the peak holiday shopping season. Last year, it hired
55,000.
"We expect each of the four Mondays during the upcoming peak
period to be among the busiest in our corporate history," Michael
Glenn, head of market development, told analysts.
There is growing online demand to ship everything from
"large-screen TVs to mattresses and trampolines," Mr. Glenn
added.
The surge in e-commerce is in contrast to a more subdued overall
economy. FedEx expects U.S. gross domestic product to expand 1.6%
this year, down from its earlier 1.8% forecast. It expects global
GDP to expand 2.2%, compared with 2.3% earlier.
Operating margins at its express unit rose to 9.4% from 8.3% in
the year-earlier quarter, boosted by higher yields with a 1% rise
in domestic and international package volume.
Margins at the company's smaller ground unit inched higher to
14.2% from 14.0%. Volume grew 10%, lifted by growing
e-commerce.
Revenue at TNT totaled $1.80 billion, with an operating loss of
$14 million.
FedEx said costs from TNT's integration and restructuring
program dented earnings by 17 cents a share, while an intangible
asset amortization expense for TNT shaved another 8 cents off
per-share profit.
Excluding those items, adjusted per-share earnings rose to $2.90
a share. Analysts polled by Thomson Reuters had projected adjusted
per-share profit of $2.81 on $14.61 billion in revenue.
FedEx said annual synergies related to the TNT deal should total
$750 million starting in fiscal 2020. FedEx acquired the Dutch
company to expand its ground network in Europe.
One analyst, David Ross at Stifel Nicolaus, questioned during
the earnings call why FedEx was buying back stock rather than
paying down debt.
Mr. Graf, the CFO, said FedEx is committed to improving its debt
profile but will continue to buy back stock, increase dividends and
invest in the business. That's because management sees healthy
growth potential and believes the company's share price is
undervalued, he added.
FedEx reiterated it plans to make $5.6 billion in capital
expenditures in fiscal 2017, or nearly 10% of revenue. Much of the
money is earmarked for expanding its ground network to capitalize
on rising e-commerce demand and modernizing its air fleet to become
more efficient. Still, Mr. Graf said capital expenditures should
drop to 6% to 8% of revenue longer term.
FedEx's ratio of total debt to earnings before interest, taxes,
depreciation and amortization is 1.8, according to S&P Capital
IQ.
--Anne Steele contributed to this article.
Corrections & Amplifications: FedEx Corp. increased its
earnings forecast for the year. An earlier version of this article
incorrectly compared the wrong set of numbers and said that the
company had lowered its guidance.
Write to Mike Esterl at mike.esterl@wsj.com
(END) Dow Jones Newswires
September 21, 2016 02:48 ET (06:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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