FedEx Corp. (NYSE: FDX) today reported the following
consolidated results for the fourth quarter ended May 31 (adjusted
measures exclude the items listed below for the applicable fiscal
year):
Fiscal 2018
Fiscal 2017
As
Reported(GAAP)
Adjusted(non-GAAP)
As
Reported(GAAP)
Adjusted(non-GAAP)
Revenue $17.3 billion $17.3 billion $15.7 billion $15.7 billion
Operating income $1.49 billion $2.00 billion $1.58 billion $1.74
billion Operating margin 8.6% 11.5% 10.1% 11.1% Net income $1.13
billion $1.60 billion $1.02 billion $1.14 billion Diluted EPS $4.15
$5.91 $3.75 $4.19
This year’s and last year’s quarterly and full-year consolidated
results have been adjusted for:
Fiscal 2018
Fiscal 2017
Impact per diluted share
FourthQuarter
FullYear
FourthQuarter
FullYear
FedEx Supply Chain goodwill and other asset impairments
$
1.40
$
1.39
$
—
$
—
TNT Express integration expenses
0.39
1.36
0.32
0.91
FedEx Trade Networks legal matters
0.01
0.02
0.09
0.09
Mark-to-market (MTM) retirement plan
accounting and other pension adjustments
(0.03
)
(0.03
)
(0.02
)
(0.02
)
Net U.S. deferred tax liability
remeasurement
—
(4.22
)
—
—
FedEx Ground legal matters — — 0.05 0.05
“I am proud of the financial and operational results FedEx
delivered in fiscal 2018 and extend well-deserved congratulations
to our more than 425,000 team members worldwide for their continued
dedication to the Purple Promise, which simply states, ‘I will make
every FedEx experience outstanding,’” said Frederick W. Smith,
FedEx Corp. chairman and chief executive officer. “It was a year of
opportunities and challenges—anticipated and unexpected—and FedEx
emerged more competitive than ever. In all my years at FedEx, I
have never been so optimistic and so sure of our strategy and our
ability to deliver an exciting future.”
Fourth quarter operating results benefited from higher base
rates, increased volume and the favorable net impact of fuel at
each transportation segment. Accelerated wage increases for certain
hourly employees partially offset these benefits.
Fourth quarter net results include a $255 million net tax
benefit ($0.94 per diluted share) from corporate structuring
transactions as part of the ongoing integration of FedEx Express
and TNT Express and a $133 million tax benefit ($0.49 per diluted
share) from foreign tax credits associated with distributions to
the U.S. from the company’s offshore operations.
Full-Year Results
FedEx Corp. reported the following consolidated results for the
full year (adjusted measures exclude the items listed above for the
applicable fiscal year):
Fiscal 2018
Fiscal 2017
As
Reported(GAAP)
Adjusted(non-GAAP)
As
Reported(GAAP)
Adjusted(non-GAAP)
Revenue $65.5 billion $65.5 billion $60.3 billion $60.3 billion
Operating income $4.87 billion $5.73 billion $5.04 billion $5.40
billion Operating margin 7.4% 8.7% 8.4% 9.0% Net income $4.57
billion $4.17 billion $3.00 billion $3.27 billion Diluted EPS
$16.79 $15.31 $11.07 $12.09
Full-year net results include tax benefits of $2.1 billion
($7.71 per diluted share) attributable to:
- A $1.6 billion benefit from the Tax
Cuts and Jobs Act (TCJA), which has three primary components:
- A provisional benefit of $1.15 billion
($4.22 per diluted share) from the remeasurement of the company’s
net U.S. deferred tax liability for lower tax rates;
- A benefit of approximately $200 million
($0.75 per diluted share) from an incremental pension contribution
made in the third quarter and deductible against the company’s
prior year taxes at 35%; and
- A benefit of approximately $265 million
($0.97 per diluted share) attributable to the phase-in of the
reduced tax rate applied to the company’s earnings.
- A net benefit of $255 million ($0.94
per diluted share) from corporate structuring transactions as part
of the ongoing integration of FedEx Express and TNT Express;
and
- A benefit of $225 million ($0.83 per
diluted share) from foreign tax credits associated with
distributions to the U.S. from the company’s offshore
operations.
Capital spending for fiscal 2018 was $5.7 billion.
For the year, the company repurchased 4.3 million shares of
FedEx common stock for approximately $1 billion.
Outlook
FedEx is unable to forecast the fiscal 2019 year-end MTM
retirement plan accounting adjustments. As a result, the company is
unable to provide a fiscal 2019 earnings per share or effective tax
rate (ETR) outlook on a GAAP basis.
New pension accounting rules will be in effect starting in
fiscal 2019 that will impact operating margin but not net income or
earnings per share. For reference, comparable measures for fiscal
2018 that have been recast to reflect application of the new rules
are provided below.
For fiscal 2019, FedEx is targeting:
- Revenue growth of approximately
9%;
- Operating margin of approximately 7.9%
(compared to a recast fiscal 2018 operating margin of 6.5%);
- Operating margin of approximately 8.5%
excluding TNT Express integration expenses (compared to a recast
fiscal 2018 operating margin of 7.8% excluding TNT Express
integration expenses and FedEx Supply Chain goodwill and other
asset impairment charges);
- Earnings of $15.65 to $16.25 per
diluted share before year-end MTM retirement plan accounting
adjustments;
- Earnings of $17.00 to $17.60 per
diluted share before year-end MTM retirement plan accounting
adjustments and excluding TNT Express integration expenses;
- ETR of approximately 25% prior to
year-end MTM retirement plan accounting adjustments, which is
higher than the fiscal 2018 ETR due to tax benefits from
transactions and TCJA impacts that will not reoccur during fiscal
2019; and
- Capital spending of $5.6 billion.
These forecasts assume moderate economic growth. The company’s
ETR and earnings per share outlook is based on current TCJA
interpretative guidance and is subject to change based on future
guidance.
“Our fiscal 2019 results will benefit from our continued focus
on revenue quality as well as from synergy realization as we make
progress in combining TNT Express with FedEx Express,” said Alan B.
Graf, Jr., FedEx Corp. executive vice president and chief financial
officer. “We expect improved earnings, cash flows and returns this
fiscal year and remain committed to improving operating income at
the FedEx Express segment by $1.2 to $1.5 billion in fiscal 2020
versus fiscal 2017.”
Aircraft Fleet
Modernization
FedEx has ordered 12 incremental Boeing 777F aircraft and 12
incremental Boeing 767F aircraft as the next phase of the company’s
ongoing fleet modernization program. The 777Fs will be delivered
between fiscal 2021 and 2025. The 767Fs will be delivered between
fiscal 2020 and 2022. These aircraft will be used to continue to
improve the efficiency and reliability of the FedEx Express
aircraft fleet and allow the company to take advantage of the
capital expensing benefits of the TCJA.
FedEx Trade Networks
Realignment
Effective in the fourth fiscal quarter, the company realigned
the specialty services companies FedEx Custom Critical and FedEx
Supply Chain under the management of FedEx Trade Networks. Prior
period results for the transportation segments have been recast to
reflect the new alignment. The FedEx Trade Networks operating
segment results are included in “Corporate, other and
eliminations.”
FedEx Express Segment
For the fourth quarter, the FedEx Express segment reported
(adjusted measures exclude TNT Express integration expenses):
Fiscal 2018
Fiscal 2017
As
Reported(GAAP)
Adjusted(non-GAAP)
As
Reported(GAAP)
Adjusted(non-GAAP)
Revenue $9.60 billion $9.60 billion $8.82 billion $8.82 billion
Operating income $990 million $1.10 billion $888 million $971
million Operating income YOY change %
11%
13%
Operating margin 10.3% 11.5% 10.1% 11.0%
Revenue increased 9% due to higher yields across the global
portfolio of package and freight services, as well as higher
freight pounds. Operating results improved due to higher revenue,
an $85 million gain on the sale of a non-core business of TNT
Express and the favorable net impact of fuel and currency exchange.
Results were partially offset by increased salaries and employee
benefits. As-reported results include $110 million of TNT Express
integration expenses.
FedEx Ground Segment
For the fourth quarter, the FedEx Ground segment reported:
Fiscal 2018
Fiscal 2017
Change Revenue $4.80 billion $4.30 billion 12%
Operating income $832 million $704 million 18% Operating margin
17.3% 16.4% 0.9 pts
Strong revenue growth was driven by average daily package volume
growth of 6% and higher base rates. Operating results improved due
to the benefits from revenue growth and ongoing cost management,
partially offset by higher purchased transportation rates and
increased staffing and network expansion costs.
FedEx Freight Segment
For the fourth quarter, the FedEx Freight segment reported:
Fiscal 2018
Fiscal 2017
Change Revenue $1.86 billion $1.60 billion 16%
Operating income $175 million $130 million 35% Operating margin
9.4% 8.1% 1.3 pts
Revenue increased due to revenue per shipment growth of 8% and
average daily shipment growth of 8%. Operating results improved
primarily due to higher revenue per shipment.
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 $65 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 425,000
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,
Statistical Books and fourth quarter fiscal 2018 Earnings
Presentation. These materials, as well as a webcast of the earnings
release conference call to be held at 5:00 p.m. EDT on June 19, 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, 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 or at
the expected cost, changes in fuel prices or currency exchange
rates, our ability to match capacity to shifting volume levels, new
U.S. domestic or international government regulation, future
guidance and interpretations relating to the TCJA and our ability
to realize the benefits of certain provisions of the TCJA, our
ability to effectively operate, integrate and leverage acquired
businesses, our ability to achieve our FedEx Express segment profit
improvement goal, legal challenges or changes related to
owner-operators 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 from any terrorist activities or
international conflicts 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.
The financial section of this release is
provided on the company’s website at investors.fedex.com.
RECONCILIATIONS OF NON-GAAP FINANCIAL
MEASURES
TO GAAP FINANCIAL MEASURES
Fourth Quarter and Full-Year Fiscal
2018 and Fiscal 2017 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 fourth quarter and adjusted full-year fiscal 2018 and 2017
consolidated operating income and margin, net income and diluted
earnings per share, and adjusted fourth quarter fiscal 2018 and
2017 FedEx Express segment operating income and margin. These
financial measures have been adjusted to exclude the impact of the
following items (as applicable):
- FedEx Supply Chain goodwill and other
asset impairment charges incurred in fiscal 2018;
- TNT Express integration expenses
incurred in fiscal 2018 and 2017;
- Fiscal 2018 and 2017 charges related to
certain pending U.S. Customs and Border Protection matters
involving FedEx Trade Networks;
- Fiscal 2018 and 2017 year-end MTM
retirement plan accounting and other pension adjustments for our
defined benefit pension and other postretirement plans;
- Net U.S. deferred tax liability
remeasurement during fiscal 2018; and
- Expenses incurred in fiscal 2017 in
connection with the settlement of (and certain expected losses
relating to) independent contractor litigation matters involving
FedEx Ground.
The goodwill and other asset impairment charges at FedEx Supply
Chain, litigation- and legal-related matters and MTM retirement
plan accounting and other pension adjustments are excluded from our
fourth quarter and full-year fiscal 2018 and 2017 consolidated
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.
We have incurred and expect to incur significant expenses over
the next few years in connection with our integration of TNT
Express. We have adjusted our fourth quarter and full-year fiscal
2018 and 2017 consolidated financial measures and the FedEx Express
segment fourth quarter fiscal 2018 and 2017 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 wages, advertising
expenses and travel. Internal salaries and wages 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 provisional benefit from the remeasurement of our net U.S.
deferred tax liability as of the date of the enactment of the TCJA
is excluded from our full-year fiscal 2018 consolidated non-GAAP
financial measures because it results from the non-recurring impact
of a significant change in the U.S. federal statutory 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 full-year fiscal 2018 consolidated financial
measures related to the TCJA includes only this transitional
impact.
We have not included the benefit from our incremental pension
contribution made in February 2018 and deductible against our prior
year taxes at 35% in the adjustment because the contribution was
made in connection with our ongoing pension management strategy.
Additionally, we have not included the benefit attributable to the
phase-in of the reduced tax rate applied to our fiscal 2018
earnings in the adjustment because the impact of the reduced tax
rate on current year earnings will be ongoing. Finally, we have not
included the provisional benefit related to the one-time transition
tax on previously deferred foreign earnings in the adjustment
because the amount of this provisional benefit at the end of fiscal
2018 was not material to our overall tax position. The provisional
benefits related to the remeasurement of our net U.S. deferred tax
liability and the one-time transition tax on previously deferred
foreign earnings are estimates subject to adjustment during a
12-month measurement period ending December 22, 2018.
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 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 SEC rules, the tables below present a reconciliation of
our presented non-GAAP financial measures to the most directly
comparable GAAP measures.
Recast Fiscal 2018 Operating Margin and
Fiscal 2019 Operating Margin, Earnings Per Share and ETR
Forecasts
Our recast fiscal 2018 operating margin (to reflect application
of the new pension accounting rules that will be in effect starting
in fiscal 2019) that excludes fiscal 2018 TNT Express integration
expenses and FedEx Supply Chain goodwill and other asset impairment
charges is a non-GAAP financial measure because of these
exclusions. Our fiscal 2019 operating margin forecast is a non-GAAP
financial measure because it excludes estimated fiscal 2019 TNT
Express integration expenses. Our fiscal 2019 earnings per share
(EPS) forecast is a non-GAAP financial measure because it excludes
the fiscal 2019 year-end MTM retirement plan accounting adjustments
and estimated fiscal 2019 TNT Express integration expenses. Our
fiscal 2019 ETR forecast is a non-GAAP financial measure because it
excludes the fiscal 2019 year-end MTM retirement plan accounting
adjustments.
We have provided these non-GAAP financial measures for the same
reasons that were outlined above for historical non-GAAP measures.
These items are excluded from our recast fiscal 2018 operating
margin and our fiscal 2019 operating margin, EPS and ETR forecasts,
as applicable, 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 adjustments, as they are significantly
impacted by changes in interest rates and the financial markets, so
such adjustments are not included in our fiscal 2019 EPS and ETR
forecasts. For this reason, a full reconciliation of our fiscal
2019 EPS and ETR forecasts to the most directly comparable GAAP
measures is impracticable. It is reasonably possible, however, that
our fiscal 2019 year-end MTM retirement plan accounting adjustments
could have a material impact on our fiscal 2019 consolidated
financial results and ETR.
As discussed above, the provisional benefit from the
remeasurement of our net U.S. deferred tax liability included in
our fiscal 2018 earnings is an estimate subject to adjustment
during a 12-month measurement period ending in fiscal 2019. Any
adjustment to this provisional benefit will be excluded from our
fiscal 2019 non-GAAP earning measures, which is consistent with our
presentation of the effects of the initial provisional benefit in
our fiscal 2018 non-GAAP earnings measures.
The table included below titled “Fiscal 2019 Earnings Per Share
Outlook” outlines the impacts of the items that are excluded from
our fiscal 2019 EPS forecast, other than the year-end MTM
retirement plan accounting adjustments. Additionally, the tables
below titled “Fiscal 2018 Recast Operating Margin for Pension
Accounting Change” and “Fiscal 2019 Operating Margin Forecast”
present reconciliations of our presented non-GAAP measures to the
most directly comparable GAAP measures.
Fourth Quarter Fiscal
2018
FedEx
Corporation
Dollars in millions, except EPS
Operating
Income
Net
DilutedEarnings
Income
Margin
Taxes1,2
Income2,3
Per Share2
GAAP measure
$
1,490
8.6
% $ 231 $ 1,127 $
4.15 FedEx Supply Chain goodwill and other asset
impairments4
380
2.2
%
1
379
1.40
TNT Express integration expenses5
136
0.8
%
30
106
0.39
FedEx Trade Networks legal matters
1
—
(1
)
2
0.01
MTM retirement plan accounting and other pension adjustments6
(10
)
(0.1
%)
(1
)
(9
)
(0.03
)
Non-GAAP measure $ 1,997 11.5 % $ 261 $ 1,604 $ 5.91
FedEx Express
Segment
Dollars in millions
Operating
Income
Margin2
GAAP measure $ 990 10.3 % TNT
Express integration expenses
110
1.1 % Non-GAAP measure $ 1,100 11.5 %
Full-Year Fiscal 2018
FedEx
Corporation
Dollars in millions, except EPS
Operating
Income
Net
DilutedEarnings
Income
Margin
Taxes1,2
Income2,3
Per Share
GAAP measure $ 4,870 7.4 %
($219 ) $ 4,572 $ 16.79
FedEx Supply Chain goodwill and other asset impairments4
380
0.6
%
1
379
1.39
TNT Express integration expenses5
477
0.7
%
105
372
1.36
FedEx Trade Networks legal matters
8
—
2
6
0.02
MTM retirement plan accounting and other pension adjustments6
(10
)
—
(1
)
(9
)
(0.03
)
Net U.S. deferred tax liability remeasurement
—
—
1,150
(1,150
)
(4.22
)
Non-GAAP measure $ 5,725 8.7 % $ 1,039 $ 4,169 $ 15.31
Fourth Quarter Fiscal
2017
FedEx
Corporation
Dollars in millions, except EPS
Operating
Income
Net
DilutedEarnings
Income
Margin
Taxes1
Income3
Per Share
GAAP measure $ 1,581 10.1 %
$ 440 $ 1,020 $ 3.75 MTM
retirement plan accounting adjustments6
(24
)
(0.1
%)
(18
)
(6
)
(0.02
)
TNT Express integration expenses5
124
0.8
%
37
87
0.32
FedEx Trade Networks legal matters
39
0.2
%
15
24
0.09
FedEx Ground legal matters
22
0.1
%
9
13
0.05
Non-GAAP measure $ 1,742 11.1 % $ 483 $ 1,138 $ 4.19
FedEx Express
Segment
Dollars in millions
Operating
Income
Margin
GAAP measure $ 888 10.1 % TNT
Express integration expenses
83
0.9 % Non-GAAP measure $ 971 11.0 %
Full-Year Fiscal 2017
FedEx
Corporation
Dollars in millions, except EPS
Operating
Income
Net
DilutedEarnings
Income
Margin
Taxes1
Income3
Per Share2
GAAP measure $ 5,037 8.4 %
$ 1,582 $ 2,997 $ 11.07
MTM retirement plan accounting adjustments6
(24
)
—
(18
)
(6
)
(0.02
)
TNT Express integration expenses5
327
0.5
%
82
245
0.91
FedEx Trade Networks legal matters
39
0.1
%
15
24
0.09
FedEx Ground legal matters
22
—
9
13
0.05
Non-GAAP measure $ 5,401 9.0 % $ 1,670 $ 3,273 $ 12.09
Fiscal 2018 Recast Operating Margin for
Pension Accounting Change
OperatingMargin
GAAP measure 7.4% Pension accounting change
(0.9%) Recast GAAP measure 6.5% TNT
Express integration expenses5 0.7% FedEx Supply Chain goodwill and
other asset impairments
0.6%
Recast non-GAAP measure7 7.8%
Fiscal 2019 Operating Margin
Forecast
OperatingMargin
GAAP measure 7.9% TNT Express integration expenses
0.6% Non-GAAP measure 8.5%
Fiscal 2019 Earnings Per Share
Outlook
Dollars in millions, except EPS
Adjustments
Diluted EarningsPer
Share
Earnings per diluted share before year-end
MTM retirement plan accounting adjustments (non-GAAP)8
$15.65 to $16.25
TNT Express integration expenses $450
Income tax effect1
(85) Net of tax effect $365 1.35 Earnings per diluted share with
adjustments8
$17.00 to $17.60
Notes:
1 – Income taxes are based on the company’s
approximate statutory tax rates applicable to each transaction, and
for fiscal 2018 and 2019, give consideration to the effects of the
TCJA on the fiscal 2018 and 2019 rates. 2 – Does not sum to total
due to rounding. 3 – Effect of “Total other (expense) income” on
net income amount not shown. 4 – Goodwill impairment charges are
not deductible for income tax purposes. 5 – These expenses,
including restructuring charges at TNT Express, were recognized at
FedEx Corporate and FedEx Express. 6 – MTM retirement plan
accounting adjustments reflect the year-end adjustment to the
valuation of the company’s defined benefit pension and other
postretirement plans. MTM retirement plan accounting and other
pension adjustments include the one-time $210 million charge
recognized in the fourth quarter of fiscal 2018 related to the
previously announced transfer of approximately $6 billion of FedEx
Corporation’s tax-qualified U.S. domestic pension plan obligations
to Metropolitan Life Insurance Company. 7 – The expenses related to
the FedEx Trade Networks legal matters do not impact the fiscal
2018 recast operating margin and, therefore, are not included as an
adjustment. 8 – The year-end MTM retirement plan accounting
adjustments, which are impracticable to calculate at this time, are
excluded.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180619006292/en/
FedEx Corp.Media Contact:Jess Bunn, 901-818-7463orInvestor
Contact:Mickey Foster, 901-818-7468Home Page: fedex.com
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