The following Management’s Discussion and Analysis of Results of Operations and Financial Condition (“MD&A”) describes the principal factors affecting the results of operations, liquidity, capital resources, contractual cash obligations, and critical accounting estimates of FedEx Corporation (“FedEx”). This discussion should be read in conjunction with the accompanying quarterly unaudited condensed consolidated financial statements and our Annual Report on Form 10-K for the year ended May 31, 2021 (“Annual Report”). Our Annual Report includes additional information about our significant accounting policies, practices, and the transactions that underlie our financial results, as well as a detailed discussion of the most significant risks and uncertainties associated with our financial condition and operating results.
We provide a broad portfolio of transportation, e-commerce, and business services through companies competing collectively, operating collaboratively, and innovating digitally, under the respected FedEx brand. Our primary operating companies are Federal Express Corporation (“FedEx Express”), the world’s largest express transportation company; FedEx Ground Package System, Inc. (“FedEx Ground”), a leading North American provider of small-package ground delivery services; and FedEx Freight Corporation (“FedEx Freight”), a leading North American provider of less-than-truckload (“LTL”) freight transportation services. These companies represent our major service lines and, along with FedEx Corporate Services, Inc. (“FedEx Services”), constitute our reportable segments.
Our FedEx Services segment provides sales, marketing, information technology, communications, customer service, technical support, billing and collection services, and certain back-office functions that support our operating segments. See “Reportable Segments” for further discussion. Additional information on our businesses can be found in our Annual Report.
Many of our operating expenses are directly impacted by revenue and volume levels, and we expect these operating expenses to fluctuate on a year-over-year basis consistent with changes in revenue and volumes. Therefore, the discussion of operating expense captions focuses on the key drivers and trends impacting expenses other than those factors strictly related to changes in revenue and volumes. The line item “Other operating expense” includes costs associated with outside service contracts (such as facility services and cargo handling, temporary labor, and security), insurance, and professional fees.
Except as otherwise specified, references to years indicate our fiscal year ending May 31, 2022 or ended May 31 of the year referenced and comparisons are to the corresponding period of the prior year. References to our transportation segments include, collectively, the FedEx Express segment, the FedEx Ground segment, and the FedEx Freight segment.
Our results for the first quarter of 2022 reflect higher operating expenses related to labor market challenges that disrupted global supply chains. The constrained labor market impacted the availability and cost of labor resulting in network inefficiencies, higher wage rates, and higher purchased transportation costs. In addition, higher self-insurance expenses primarily due to increased utilization of healthcare benefits postponed from 2021 due to the coronavirus (“COVID-19”) pandemic negatively impacted our first quarter 2022 results. In response to market conditions, we implemented various pricing initiatives resulting in yield improvement in the first quarter of 2022. Results were positively impacted by a mix shift from our residential to our higher yielding commercial services in the first quarter of 2022 due to changes in business and consumer behavior resulting from the ongoing recovery from the COVID-19 pandemic. In addition, our net fuel position across all of our transportation segments positively impacted operating income in the first quarter of 2022.
Our first quarter 2022 results include business realignment costs of $67 million ($52 million, net of tax, or $0.19 per diluted share) associated with our workforce reduction plan in Europe announced in January 2021. See the “Business Realignment Costs” section of this MD&A for more information.
We incurred TNT Express integration expenses totaling $29 million ($23 million, net of tax, or $0.08 per diluted share) in the first quarter of 2022, a $20 million decrease from the first quarter of 2021. The integration expenses are predominantly incremental costs directly associated with the integration of TNT Express, including professional and legal fees and other operating expenses. Internal salaries and employee benefits are included only to the extent the individuals are assigned full-time to integration activities. These costs were incurred at FedEx Express and FedEx Corporate. The identification of these costs as integration-related expenditures is subject to our disclosure controls and procedures. Integration expenses do not include costs associated with our business realignment activities (discussed above).
The following graphs for FedEx Express, FedEx Ground, and FedEx Freight show selected yield trends over the five most recent quarters:
Revenue increased 14% in the first quarter of 2022 primarily due to volume growth, yield improvement, and higher fuel surcharges across all of our transportation segments.
Revenue at FedEx Express increased 14% in the first quarter of 2022 due to international export and U.S. domestic package volume growth, increased international and U.S. domestic package yield, and favorable exchange rates. At FedEx Ground, revenue increased 9% in the first quarter of 2022 primarily due to yield improvement and commercial volume growth. We experienced a shift to higher yielding ground commercial services in the first quarter of 2022 as business and consumer behaviors changed due to ongoing recovery from the COVID-19 pandemic. FedEx Freight revenue increased 23% in the first quarter of 2022 primarily due to increased average daily shipments and higher revenue per shipment.
Operating Expenses
The following tables compare operating expenses expressed as dollar amounts (in millions) and as a percent of revenue for the periods ended August 31:
|
|
Three Months Ended
|
|
|
Percent
|
|
|
Percent of Revenue
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
|
2021
|
|
|
|
2020
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
$
|
7,776
|
|
|
$
|
6,852
|
|
|
|
13
|
|
|
|
35.3
|
|
%
|
|
|
35.5
|
|
%
|
Purchased transportation
|
|
|
5,659
|
|
|
|
4,977
|
|
|
|
14
|
|
|
|
25.7
|
|
|
|
|
25.8
|
|
|
Rentals and landing fees
|
|
|
1,133
|
|
|
|
936
|
|
|
|
21
|
|
|
|
5.1
|
|
|
|
|
4.8
|
|
|
Depreciation and amortization
|
|
|
971
|
|
|
|
926
|
|
|
|
5
|
|
|
|
4.4
|
|
|
|
|
4.8
|
|
|
Fuel
|
|
|
1,009
|
|
|
|
565
|
|
|
|
79
|
|
|
|
4.6
|
|
|
|
|
2.9
|
|
|
Maintenance and repairs
|
|
|
869
|
|
|
|
806
|
|
|
|
8
|
|
|
|
4.0
|
|
|
|
|
4.2
|
|
|
Business realignment costs
|
|
|
67
|
|
|
|
—
|
|
|
NM
|
|
|
|
0.3
|
|
|
|
|
—
|
|
|
Other
|
|
|
3,121
|
|
|
|
2,669
|
|
|
|
17
|
|
|
|
14.2
|
|
|
|
|
13.8
|
|
|
Total operating expenses
|
|
|
20,605
|
|
|
|
17,731
|
|
|
|
16
|
|
|
|
93.6
|
|
|
|
|
91.8
|
|
|
Operating income
|
|
$
|
1,398
|
|
|
$
|
1,590
|
|
|
|
(12
|
)
|
|
|
6.4
|
|
%
|
|
|
8.2
|
|
%
|
Our results declined in the first quarter of 2022 primarily due to the constrained labor market, which impacted labor availability and resulted in network inefficiencies, higher wage rates, and higher purchased transportation costs. Improved yield across all of our transportation segments and a mix shift to our higher yielding commercial services positively impacted our results in the first quarter of 2022.
Salaries and employee benefits expense increased 13% in the first quarter of 2022 primarily due to volume growth, increased utilization of healthcare benefits, and higher labor costs. Purchased transportation costs increased 14% in the first quarter of 2022 primarily due to the challenging labor market resulting in higher rates at FedEx Ground, as well as higher volumes at FedEx Express and FedEx Freight. Other operating expenses increased 17% in the first quarter of 2022 primarily due to volume-related expenses and higher self-insurance accruals. Rentals and landing fees expense increased 21% in the first quarter of 2022 primarily driven by increased vehicle and aircraft leases at FedEx Express and network expansion at FedEx Ground.
- 23 -
Fuel
The following graph for our transportation segments shows our average cost of vehicle and jet fuel per gallon for the five most recent quarters:
Fuel expense increased 79% in the first quarter of 2022 due to higher fuel prices. Fuel prices represent only one component of the factors we consider meaningful in understanding the impact of fuel on our business. Consideration must also be given to the fuel surcharge revenue we collect. Accordingly, we believe discussion of the net impact of fuel on our results, which is a comparison of the year-over-year change in these two factors, is important to understand the impact of fuel on our business. In order to provide information about the impact of fuel surcharges on the trend in revenue and yield growth, we have included the comparative weighted-average fuel surcharge percentages in effect for the first quarters of 2022 and 2021 in the accompanying discussion of each of our transportation segments.
Because of the factors described above, our operating results may be affected should the market price of fuel suddenly change by a significant amount or change by amounts that do not result in an adjustment in our fuel surcharges, which can significantly affect our earnings either positively or negatively in the short-term.
We routinely review our fuel surcharges and periodically update the tables used to determine our fuel surcharges at all of our transportation segments. The net impact of fuel on operating income described below and for each segment below excludes the impact from these table changes.
The net impact of fuel had a moderate benefit to operating income in the first quarter of 2022 as higher fuel surcharges outpaced increased fuel prices.
Business Realignment Costs
In 2021, FedEx Express announced a workforce reduction plan in Europe as it nears the completion of the network integration of TNT Express. The plan will impact 5,500 and 6,300 employees in Europe across operational teams and back-office functions. The execution of the plan is subject to a works council consultation process that will occur over an 18-month period in accordance with local country processes and regulations.
We incurred costs during the first quarter of 2022 of $67 million ($52 million, net of tax, or $0.19 per diluted share) associated with our business realignment activities. We recognized $116 million ($90 million, net of tax, or $0.33 per diluted share) of costs under this program in the second half of 2021. These costs are related to certain employee severance arrangements. Payments under this program totaled approximately $31 million in the first quarter of 2022. We expect the pre-tax cost of our business realignment activities to range from $300 million to $575 million through fiscal 2023. We expect savings from our business realignment activities to be between $275 million and $350 million on an annualized basis beginning in fiscal 2024. The actual amount and timing of business realignment costs and related cost savings resulting from the workforce reduction plan are dependent on local country consultation processes and regulations and negotiated social plans and may differ from our current expectations and estimates.
- 24 -
Income Taxes
Our effective tax rate was 23.7% for the first quarter of 2022, compared to 22.5% for the first quarter of 2021. The 2021 tax rate was favorably impacted by changes in our corporate legal entity structure, including the tax status of certain foreign entities.
We are subject to taxation in the United States and various U.S. state, local, and foreign jurisdictions. We are currently under examination by the Internal Revenue Service for the 2016 through 2019 tax years. It is reasonably possible that certain income tax return proceedings will be completed during the next 12 months and could result in a change in our balance of unrecognized tax benefits. However, we believe we have recorded adequate amounts of tax, including interest and penalties, for any adjustments expected to occur.
During 2021, we filed suit in U.S. District Court for the Western District of Tennessee challenging the validity of a tax regulation related to the one-time transition tax on unrepatriated foreign earnings, which was enacted as part of the Tax Cuts and Jobs Act (“TCJA”). Our lawsuit seeks to have the court declare this regulation invalid and order the refund of overpayments of U.S. federal income taxes for 2018 and 2019 attributable to the denial of foreign tax credits under the regulation. We have recorded a cumulative benefit of $215 million through the first quarter of 2022 attributable to our interpretation of the TCJA and the Internal Revenue Code. We continue to pursue this lawsuit; however, if we are ultimately unsuccessful in defending our position, we may be required to reverse the benefit previously recorded.
Outlook
We anticipate yield and volume growth to drive improved revenue and operating income across our transportation segments for 2022. However, we expect costs associated with the challenging labor market, including increased purchased transportation costs, higher labor costs, and network inefficiencies, to continue to pressure operating profit growth during the remainder of 2022. We expect labor challenges to begin to subside in the second half of 2022.
We expect global constraints resulting from the COVID-19 pandemic to continue to drive strong demand for international export shipments for the remainder of 2022. In addition, as business and consumer behavior changes in response to the ongoing recovery from the COVID-19 pandemic, we anticipate elevated demand for higher yielding commercial services to continue for the remainder of 2022. We will continue managing network capacity based on customer demand levels, flexing our network as needed to align with volumes and operating conditions.
We will continue to optimize our FedEx Ground seven-day-per-week residential delivery network capacity to meet evolving customer needs. In addition, we will continue to focus on last-mile delivery optimization by directing certain U.S. day-definite FedEx Express shipments into the FedEx Ground network to increase efficiency and lower our cost-to-serve. We also are focused on improving revenue quality and lowering costs through advanced technology aimed at improving productivity and safety.
We expect to complete the final phase of FedEx Express and TNT Express international air network interoperability in early calendar 2022 allowing us to leverage the capabilities that TNT Express adds to our portfolio, which is expected to improve our European revenue and profitability.
We expect to incur approximately $120 million of integration expenses in the remainder of 2022 in the form of professional fees, other operating expenses, and outside service contracts. We expect the aggregate integration program expenses to be approximately $1.8 billion through the completion of the physical network integration of TNT Express into FedEx Express in 2022.
We will continue to execute initiatives in addition to the physical network integration to further transform and optimize the FedEx Express international business, particularly in Europe, for the remainder of 2022. These actions are focused on reducing the complexity and fragmentation of our international business, improving efficiency to meet changing customer expectations and business dynamics, lowering costs, increasing profitability, and improving service levels. We expect to incur additional costs, over multiple years, including transformation costs and capital investments related to these actions. As part of this strategy, in 2021 we announced a workforce reduction plan in Europe. We expect the pre-tax cost of the severance benefits to be provided under the plan to range from $300 million to $575 million in cash expenditures through fiscal 2023. We expect savings from our business realignment activities to be between $275 million and $350 million on an annualized basis beginning in fiscal 2024. See the “Business Realignment Costs” section of this MD&A for additional information.
We expect continued uncertainty in our business and the global economy due to the duration and spread of the COVID-19 pandemic, the success of efforts to contain it and treat its impact, the possibility of additional subsequent widespread outbreaks and variant strains, the resulting effects on the economic conditions in the global markets in which we operate, the future rate of e-commerce growth, and the timeline for recovery of passenger airline cargo capacity.
- 25 -
Our expectations for the remainder of 2022 are dependent on key external factors, including no further weakening of global economic conditions or additional shut-downs related to the COVID-19 pandemic, gradual improvement in labor availability beginning in the second half of 2022, current fuel price expectations, and no additional adverse developments in international trade policies and relations.
Other Outlook Matters. For details on key 2022 capital projects, refer to the “Liquidity Outlook” section of this MD&A.
See “Forward-Looking Statements” and Part II, Item 1A “Risk Factors” for a discussion of these and other potential risks and uncertainties that could materially affect our future performance.
RECENT ACCOUNTING GUIDANCE
See Note 1 of the accompanying unaudited condensed consolidated financial statements for a discussion of recent accounting guidance.
REPORTABLE SEGMENTS
FedEx Express, FedEx Ground, and FedEx Freight represent our major service lines and, along with FedEx Services, constitute our reportable segments. Our reportable segments include the following businesses:
FedEx Express Segment
|
FedEx Express (express transportation, small-package ground delivery, and freight transportation)
|
|
FedEx Custom Critical, Inc. (time-critical transportation)
FedEx Cross Border Holdings, Inc. (cross-border e-commerce technology and e-commerce transportation solutions)
|
|
|
FedEx Ground Segment
|
FedEx Ground (small-package ground delivery)
|
|
|
FedEx Freight Segment
|
FedEx Freight (LTL freight transportation)
|
|
|
FedEx Services Segment
|
FedEx Services (sales, marketing, information technology, communications, customer service, technical support, billing and collection services, and back-office functions)
|
FEDEX SERVICES SEGMENT
The FedEx Services segment provides direct and indirect support to our operating segments, and we allocate all of the net operating costs of the FedEx Services segment to reflect the full cost of operating our businesses in the results of those segments. We review and evaluate the performance of our transportation segments based on operating income (inclusive of FedEx Services segment allocations). For the FedEx Services segment, performance is evaluated based on the impact of its total allocated net operating costs on our operating segments.
The operating expense line item “Intercompany charges” on the accompanying unaudited condensed consolidated financial statements of our transportation segments reflects the allocations from the FedEx Services segment to the respective operating segments. The allocations of net operating costs are based on metrics such as relative revenue or estimated services provided. We believe these allocations approximate the net cost of providing these functions. Our allocation methodologies are refined periodically, as necessary, to reflect changes in our businesses.
CORPORATE, OTHER, AND ELIMINATIONS
Corporate and other includes corporate headquarters costs for executive officers and certain legal and finance functions, including certain other costs and credits not attributed to our core business, as well as certain costs associated with developing our innovate digitally strategic pillar through our FedEx Dataworks, Inc. (including ShopRunner, Inc.) (“FedEx Dataworks”) operating segment. FedEx Dataworks is focused on creating solutions to transform the digital and physical experiences of our customers and team members.
Also included in Corporate and other are the FedEx Office and Print Services, Inc. operating segment, which provides an array of document and business services and retail access to our customers for our package transportation businesses, and the FedEx Logistics, Inc. (“FedEx Logistics”) operating segment, which provides integrated supply chain management solutions, specialty transportation, customs brokerage, and global ocean and air freight forwarding.
The results of Corporate, other, and eliminations are not allocated to the other business segments.
- 26 -
In the first quarter of 2022, the increase in revenue in Corporate, other, and eliminations was driven primarily by increased yields at FedEx Logistics. Yields increased in the first quarter of 2022 as a result of higher rates driven by market capacity constraints related to the COVID-19 pandemic.
Certain FedEx operating companies provide transportation and related services for other FedEx companies outside their reportable segment in order to optimize our resources. For example, during the first quarter of 2022 FedEx Freight provided road and intermodal support for both FedEx Ground and FedEx Express, and FedEx Ground provided delivery support for certain FedEx Express packages as part of our last-mile optimization efforts. In addition, FedEx Express is working with FedEx Logistics to secure air charters for U.S. customers. Billings for such services are based on negotiated rates, which we believe approximate fair value, and are reflected as revenue of the billing segment. These rates are adjusted from time to time based on market conditions. Such intersegment revenue and expenses are eliminated in our consolidated results and are not separately identified in the following segment information because the amounts are not material.
FEDEX EXPRESS SEGMENT
FedEx Express offers a wide range of U.S. domestic and international shipping services for delivery of packages and freight including priority, deferred, and economy services, which provide delivery on a time-definite or day-definite basis. The following tables compare revenue, operating expenses, operating income (dollars in millions), operating margin, and operating expenses as a percent of revenue for the periods ended August 31:
|
|
Three Months Ended
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Package:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. overnight box
|
|
$
|
2,170
|
|
|
$
|
1,861
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
U.S. overnight envelope
|
|
|
482
|
|
|
|
426
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
U.S. deferred
|
|
|
1,231
|
|
|
|
1,096
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
Total U.S. domestic package revenue
|
|
|
3,883
|
|
|
|
3,383
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
International priority
|
|
|
2,839
|
|
|
|
2,317
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
International economy
|
|
|
669
|
|
|
|
616
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
Total international export package revenue
|
|
|
3,508
|
|
|
|
2,933
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
International domestic(1)
|
|
|
1,114
|
|
|
|
1,088
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
Total package revenue
|
|
|
8,505
|
|
|
|
7,404
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
Freight:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
775
|
|
|
|
833
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
International priority
|
|
|
873
|
|
|
|
653
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
International economy
|
|
|
414
|
|
|
|
371
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
International airfreight
|
|
|
47
|
|
|
|
75
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
Total freight revenue
|
|
|
2,109
|
|
|
|
1,932
|
|
|
|
9
|
|
|
Percent of Revenue
|
|
|
Other
|
|
|
352
|
|
|
|
311
|
|
|
|
13
|
|
|
2021
|
|
|
|
2020
|
|
|
Total revenue
|
|
|
10,966
|
|
|
|
9,647
|
|
|
|
14
|
|
|
|
100.0
|
|
%
|
|
|
100.0
|
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
4,084
|
|
|
|
3,742
|
|
|
|
9
|
|
|
|
37.2
|
|
|
|
|
38.8
|
|
|
Purchased transportation
|
|
|
1,551
|
|
|
|
1,304
|
|
|
|
19
|
|
|
|
14.2
|
|
|
|
|
13.5
|
|
|
Rentals and landing fees
|
|
|
635
|
|
|
|
504
|
|
|
|
26
|
|
|
|
5.8
|
|
|
|
|
5.2
|
|
|
Depreciation and amortization
|
|
|
492
|
|
|
|
477
|
|
|
|
3
|
|
|
|
4.5
|
|
|
|
|
5.0
|
|
|
Fuel
|
|
|
868
|
|
|
|
496
|
|
|
|
75
|
|
|
|
7.9
|
|
|
|
|
5.1
|
|
|
Maintenance and repairs
|
|
|
573
|
|
|
|
551
|
|
|
|
4
|
|
|
|
5.2
|
|
|
|
|
5.7
|
|
|
Business realignment costs
|
|
|
67
|
|
|
|
—
|
|
|
NM
|
|
|
|
0.6
|
|
|
|
|
—
|
|
|
Intercompany charges
|
|
|
508
|
|
|
|
461
|
|
|
|
10
|
|
|
|
4.6
|
|
|
|
|
4.8
|
|
|
Other
|
|
|
1,621
|
|
|
|
1,402
|
|
|
|
16
|
|
|
|
14.8
|
|
|
|
|
14.5
|
|
|
Total operating expenses
|
|
|
10,399
|
|
|
|
8,937
|
|
|
|
16
|
|
|
|
94.8
|
|
%
|
|
|
92.6
|
|
%
|
Operating income
|
|
$
|
567
|
|
|
$
|
710
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
5.2
|
%
|
|
|
7.4
|
%
|
|
|
(220
|
)
|
bp
|
|
|
|
|
|
|
|
|
|
(1)
|
International domestic revenue relates to our international intra-country operations.
|
- 27 -
The following table compares selected statistics (in thousands, except yield amounts) for the periods ended August 31:
|
|
Three Months Ended
|
|
|
Percent
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
Package Statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
Average daily package volume (ADV):
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. overnight box
|
|
|
1,413
|
|
|
|
1,287
|
|
|
|
10
|
|
U.S. overnight envelope
|
|
|
514
|
|
|
|
483
|
|
|
|
6
|
|
U.S. deferred
|
|
|
1,251
|
|
|
|
1,207
|
|
|
|
4
|
|
Total U.S. domestic ADV
|
|
|
3,178
|
|
|
|
2,977
|
|
|
|
7
|
|
International priority
|
|
|
771
|
|
|
|
696
|
|
|
|
11
|
|
International economy
|
|
|
263
|
|
|
|
260
|
|
|
|
1
|
|
Total international export ADV
|
|
|
1,034
|
|
|
|
956
|
|
|
|
8
|
|
International domestic(1)
|
|
|
2,004
|
|
|
|
2,298
|
|
|
|
(13
|
)
|
Total ADV
|
|
|
6,216
|
|
|
|
6,231
|
|
|
|
—
|
|
Revenue per package (yield):
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. overnight box
|
|
$
|
23.62
|
|
|
$
|
22.25
|
|
|
|
6
|
|
U.S. overnight envelope
|
|
|
14.42
|
|
|
|
13.56
|
|
|
|
6
|
|
U.S. deferred
|
|
|
15.14
|
|
|
|
13.97
|
|
|
|
8
|
|
U.S. domestic composite
|
|
|
18.79
|
|
|
|
17.48
|
|
|
|
7
|
|
International priority
|
|
|
56.64
|
|
|
|
51.18
|
|
|
|
11
|
|
International economy
|
|
|
39.10
|
|
|
|
36.46
|
|
|
|
7
|
|
International export composite
|
|
|
52.18
|
|
|
|
47.18
|
|
|
|
11
|
|
International domestic(1)
|
|
|
8.56
|
|
|
|
7.28
|
|
|
|
18
|
|
Composite package yield
|
|
$
|
21.05
|
|
|
$
|
18.28
|
|
|
|
15
|
|
Freight Statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
Average daily freight pounds:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
8,040
|
|
|
|
8,849
|
|
|
|
(9
|
)
|
International priority
|
|
|
6,594
|
|
|
|
5,501
|
|
|
|
20
|
|
International economy
|
|
|
11,683
|
|
|
|
11,633
|
|
|
|
—
|
|
International airfreight
|
|
|
1,227
|
|
|
|
1,575
|
|
|
|
(22
|
)
|
Total average daily freight pounds
|
|
|
27,544
|
|
|
|
27,558
|
|
|
|
—
|
|
Revenue per pound (yield):
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
1.48
|
|
|
$
|
1.45
|
|
|
|
2
|
|
International priority
|
|
|
2.04
|
|
|
|
1.83
|
|
|
|
11
|
|
International economy
|
|
|
0.55
|
|
|
|
0.49
|
|
|
|
12
|
|
International airfreight
|
|
|
0.60
|
|
|
|
0.74
|
|
|
|
(19
|
)
|
Composite freight yield
|
|
$
|
1.18
|
|
|
$
|
1.08
|
|
|
|
9
|
|
(1)
|
International domestic statistics relate to our international intra-country operations.
|
FedEx Express Segment Revenue
FedEx Express segment revenue increased 14% in the first quarter of 2022 due to international export and U.S. domestic package volume growth, higher fuel surcharges, increased international and U.S. domestic package yield, and favorable exchange rates.
FedEx Express segment revenue in the first quarter of 2021 included a benefit from a reduction in aviation excise taxes on cargo provided by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which expired on December 31, 2020.
- 28 -
International export package average daily volumes increased 8% in the first quarter of 2022 primarily due to growth in our international priority service offering, as industry-wide capacity constraints and actions to prioritize premium-yielding products drove a mix shift from international economy to international priority services. International export package yield increased 11% in the first quarter of 2022 primarily driven by higher fuel surcharges and favorable exchange rates. U.S. domestic package average daily volumes increased 7% in the first quarter of 2022 driven by growth in all of our service offerings. U.S. domestic package yield increased 7% in the first quarter of 2022 driven by higher fuel surcharges and base rate improvement. During the first quarter of 2022, total average daily freight pounds decreased slightly, as the prior year included a surge in charter flights due to the COVID-19 pandemic. This decrease was partially offset by higher international priority freight pounds resulting from increased demand for international freight capacity during the first quarter of 2022. Composite freight yield increased 9% in the first quarter of 2022 primarily due to higher fuel surcharges. International domestic package average daily volumes decreased 13% in the first quarter of 2022 primarily due to yield management actions. International domestic package yield increased 18% in the first quarter of 2022 driven by base yield improvement, favorable exchange rates, and higher fuel surcharges.
FedEx Express’s U.S. domestic and outbound fuel surcharge and international fuel surcharge ranged as follows for the periods ended August 31:
|
|
Three Months Ended
|
|
|
|
2021
|
|
|
2020
|
|
U.S. Domestic and Outbound Fuel Surcharge:
|
|
|
|
|
|
|
|
|
Low
|
|
|
7.72
|
%
|
|
|
2.73
|
%
|
High
|
|
|
10.10
|
|
|
|
4.12
|
|
Weighted-average
|
|
|
8.56
|
|
|
|
3.43
|
|
International Export and Freight Fuel Surcharge:
|
|
|
|
|
|
|
|
|
Low
|
|
|
6.39
|
|
|
|
0.28
|
|
High
|
|
|
23.45
|
|
|
|
17.00
|
|
Weighted-average
|
|
|
17.50
|
|
|
|
10.29
|
|
International Domestic Fuel Surcharge:
|
|
|
|
|
|
|
|
|
Low
|
|
|
4.02
|
|
|
|
4.19
|
|
High
|
|
|
21.48
|
|
|
|
20.33
|
|
Weighted-average
|
|
|
8.09
|
|
|
|
5.93
|
|
FedEx Express Segment Operating Income
FedEx Express segment operating income decreased 20% in the first quarter of 2022 primarily due to the constrained labor market, which impacted labor availability and resulted in network inefficiencies and higher wage rates. In addition, lower U.S. average daily freight pounds primarily due to a surge in charter flights in the prior year negatively impacted operating income in the first quarter of 2022. Increased international and U.S. domestic package yields partially offset these negative factors in the first quarter of 2022. Results in 2021 include a pre-tax benefit of approximately $65 million from a reduction in aviation excise taxes provided by the CARES Act.
FedEx Express segment results include business realignment costs of $67 million in the first quarter of 2022 associated with our workforce reduction plan in Europe. See the “Business Realignment Costs” section of this MD&A for more information. FedEx Express segment results also include $26 million of TNT Express integration expenses in the first quarter of 2022, an $11 million decrease from the first quarter of 2021.
Salaries and employee benefits expense increased 9% in the first quarter of 2022 primarily due to staffing to support volume growth, increased utilization of healthcare benefits, and higher labor costs. Purchased transportation expense increased 19% in the first quarter of 2022 primarily due to higher utilization of third-party transportation providers and increased rates. Other operating expense increased 16% in the first quarter of 2022 primarily due to volume-related expenses and higher self-insurance accruals. Rentals and landing fees expense increased 26% in the first quarter of 2022 primarily driven by increased vehicle and aircraft leases.
Fuel expense increased 75% in the first quarter of 2022 due to increased fuel prices. The net impact of fuel had a moderate benefit to operating income in the first quarter of 2022 as higher fuel surcharges outpaced increased fuel prices. See the “Fuel” section of this MD&A for a description and additional discussion of the net impact of fuel on our operating results.
- 29 -
FEDEX GROUND SEGMENT
FedEx Ground service offerings include day-certain delivery to businesses in the U.S. and Canada and to 100% of U.S. residences. Prior year statistical information has been revised to conform to the current year presentation. The following tables compare revenue, operating expenses, operating income (dollars in millions), operating margin, selected package statistics (in thousands, except yield amounts), and operating expenses as a percent of revenue for the periods ended August 31:
|
|
Three Months Ended
|
|
|
Percent
|
|
|
|
Percent of Revenue
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
|
|
2021
|
|
|
|
2020
|
|
|
Revenue
|
|
$
|
7,677
|
|
|
$
|
7,040
|
|
|
|
9
|
|
|
|
|
100.0
|
|
%
|
|
|
100.0
|
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
1,613
|
|
|
|
1,274
|
|
|
|
27
|
|
|
|
|
21.0
|
|
|
|
|
18.2
|
|
|
Purchased transportation
|
|
|
3,503
|
|
|
|
3,291
|
|
|
|
6
|
|
|
|
|
45.6
|
|
|
|
|
46.7
|
|
|
Rentals
|
|
|
318
|
|
|
|
264
|
|
|
|
20
|
|
|
|
|
4.1
|
|
|
|
|
3.8
|
|
|
Depreciation and amortization
|
|
|
226
|
|
|
|
204
|
|
|
|
11
|
|
|
|
|
3.0
|
|
|
|
|
2.9
|
|
|
Fuel
|
|
|
6
|
|
|
|
4
|
|
|
|
50
|
|
|
|
|
0.1
|
|
|
|
|
—
|
|
|
Maintenance and repairs
|
|
|
136
|
|
|
|
107
|
|
|
|
27
|
|
|
|
|
1.8
|
|
|
|
|
1.5
|
|
|
Intercompany charges
|
|
|
491
|
|
|
|
432
|
|
|
|
14
|
|
|
|
|
6.4
|
|
|
|
|
6.1
|
|
|
Other
|
|
|
713
|
|
|
|
630
|
|
|
|
13
|
|
|
|
|
9.3
|
|
|
|
|
9.0
|
|
|
Total operating expenses
|
|
|
7,006
|
|
|
|
6,206
|
|
|
|
13
|
|
|
|
|
91.3
|
|
%
|
|
|
88.2
|
|
%
|
Operating income
|
|
$
|
671
|
|
|
$
|
834
|
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
8.7
|
%
|
|
|
11.8
|
%
|
|
|
(310
|
)
|
bp
|
|
|
|
|
|
|
|
|
|
|
Average daily package volume (ADV)(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ground commercial
|
|
|
4,425
|
|
|
|
3,966
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
Home delivery
|
|
|
3,747
|
|
|
|
3,682
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
Economy
|
|
|
1,164
|
|
|
|
1,698
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total ADV
|
|
|
9,336
|
|
|
|
9,346
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue per package (yield)
|
|
$
|
10.29
|
|
|
$
|
9.33
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Ground commercial ADV is calculated on a 5-day-per-week basis, while home delivery and economy ADV are calculated on a 7-day-per-week basis.
|
FedEx Ground Segment Revenue
FedEx Ground segment revenue increased 9% in the first quarter of 2022 primarily due to improved yields related to product mix and pricing initiatives, higher fuel surcharges, and commercial volume growth.
FedEx Ground yield increased 10% in the first quarter of 2022 primarily due to product mix, pricing initiatives, and higher fuel surcharges. Average daily volume decreased slightly in the first quarter of 2022 primarily due to lower economy volume, partially offset by growth in commercial services. The decline in economy services in the first quarter of 2022 is primarily due to strategic actions taken to improve revenue quality and prioritize capacity for higher yielding business-to-consumer volume. In addition, a surge in e-commerce demand during the first quarter of 2021 resulting from the COVID-19 pandemic negatively impacted the year-over-year comparison in the first quarter of 2022. Commercial services experienced growth in the first quarter of 2022 as business and consumer behaviors changed due to ongoing recovery from the COVID-19 pandemic.
The FedEx Ground fuel surcharge is based on a rounded average of the national U.S. on-highway average price for a gallon of diesel fuel, as published by the Department of Energy. The fuel surcharge ranged as follows for the periods ended August 31:
|
|
Three Months Ended
|
|
|
|
2021
|
|
|
2020
|
|
Low
|
|
|
8.00
|
%
|
|
|
5.75
|
%
|
High
|
|
|
9.25
|
|
|
|
5.75
|
|
Weighted-average
|
|
|
8.97
|
|
|
|
5.75
|
|
- 30 -
FedEx Ground Segment Operating Income
FedEx Ground segment operating income decreased 20% in the first quarter of 2022 primarily due to the constrained labor market, which impacted labor availability and resulted in network inefficiencies, higher purchased transportation costs, and higher wage rates. Yield improvement due to product mix and pricing initiatives, as well as commercial volume growth, partially offset these higher operating costs during the first quarter of 2022.
Salaries and employee benefits expense increased 27% in the first quarter of 2022 due to increased labor expenses and increased utilization of healthcare benefits. Purchased transportation expense increased 6% in the first quarter of 2022 due to increased contractor settlement rates resulting from labor shortages. Other operating expense increased 13% in the first quarter of 2022 primarily due to additional volume-related expenses and higher self-insurance accruals. Intercompany charges increased 14% in the first quarter of 2022 due to higher allocated information technology and marketing costs. Rentals expense increased 20% in the first quarter of 2022 due to network expansion.
The net impact of fuel had a moderate benefit to operating income in the first quarter of 2022 as higher fuel surcharges outpaced increased fuel prices. See the “Fuel” section of this MD&A for a description and additional discussion of the net impact of fuel on our operating results.
FEDEX FREIGHT SEGMENT
FedEx Freight LTL service offerings include priority services when speed is critical and economy services when time can be traded for savings. The following tables compare revenue, operating expenses, operating income (dollars in millions), operating margin, selected statistics, and operating expenses as a percent of revenue for the periods ended August 31:
|
|
Three Months Ended
|
|
|
Percent
|
|
|
|
Percent of Revenue
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Change
|
|
|
|
2021
|
|
|
|
2020
|
|
|
Revenue
|
|
$
|
2,251
|
|
|
$
|
1,826
|
|
|
|
23
|
|
|
|
|
100.0
|
|
%
|
|
|
100.0
|
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
988
|
|
|
|
858
|
|
|
|
15
|
|
|
|
|
43.9
|
|
|
|
|
47.0
|
|
|
Purchased transportation
|
|
|
239
|
|
|
|
170
|
|
|
|
41
|
|
|
|
|
10.6
|
|
|
|
|
9.3
|
|
|
Rentals
|
|
|
59
|
|
|
|
56
|
|
|
|
5
|
|
|
|
|
2.6
|
|
|
|
|
3.1
|
|
|
Depreciation and amortization
|
|
|
99
|
|
|
|
106
|
|
|
|
(7
|
)
|
|
|
|
4.4
|
|
|
|
|
5.8
|
|
|
Fuel
|
|
|
135
|
|
|
|
65
|
|
|
|
108
|
|
|
|
|
6.0
|
|
|
|
|
3.6
|
|
|
Maintenance and repairs
|
|
|
63
|
|
|
|
53
|
|
|
|
19
|
|
|
|
|
2.8
|
|
|
|
|
2.9
|
|
|
Intercompany charges
|
|
|
126
|
|
|
|
119
|
|
|
|
6
|
|
|
|
|
5.6
|
|
|
|
|
6.5
|
|
|
Other
|
|
|
152
|
|
|
|
125
|
|
|
|
22
|
|
|
|
|
6.8
|
|
|
|
|
6.8
|
|
|
Total operating expenses
|
|
|
1,861
|
|
|
|
1,552
|
|
|
|
20
|
|
|
|
|
82.7
|
|
%
|
|
|
85.0
|
|
%
|
Operating income
|
|
$
|
390
|
|
|
$
|
274
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
17.3
|
%
|
|
|
15.0
|
%
|
|
|
230
|
|
bp
|
|
|
|
|
|
|
|
|
|
|
Average daily shipments (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Priority
|
|
|
80.3
|
|
|
|
71.3
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
Economy
|
|
|
33.5
|
|
|
|
30.1
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average daily shipments
|
|
|
113.8
|
|
|
|
101.4
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
Weight per shipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Priority
|
|
|
1,085
|
|
|
|
1,096
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Economy
|
|
|
938
|
|
|
|
998
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Composite weight per shipment
|
|
|
1,041
|
|
|
|
1,067
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Revenue per shipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Priority
|
|
$
|
290.92
|
|
|
$
|
259.90
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
Economy
|
|
|
333.02
|
|
|
|
302.74
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
Composite revenue per shipment
|
|
$
|
303.32
|
|
|
$
|
272.62
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue per hundredweight
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Priority
|
|
$
|
26.82
|
|
|
$
|
23.71
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
Economy
|
|
|
35.50
|
|
|
|
30.34
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
Composite revenue per hundredweight
|
|
$
|
29.13
|
|
|
$
|
25.55
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
- 31 -
FedEx Freight Segment Revenue
FedEx Freight segment revenue increased 23% in the first quarter of 2022 primarily due to increased average daily shipments and higher revenue per shipment.
Average daily shipments increased 12% in the first quarter of 2022 due to higher demand for our service offerings. Revenue per shipment increased 11% in the first quarter of 2022 primarily due to higher base rates reflecting our ongoing revenue quality initiatives and higher fuel surcharge rates, which more than offset the impact of lower weight per shipment.
The weekly indexed fuel surcharge is based on the average of the U.S. on-highway prices for a gallon of diesel fuel, as published by the Department of Energy. The indexed FedEx Freight fuel surcharge ranged as follows for the periods ended August 31:
|
|
Three Months Ended
|
|
|
|
2021
|
|
|
2020
|
|
Low
|
|
|
25.40
|
%
|
|
|
21.00
|
%
|
High
|
|
|
25.90
|
|
|
|
21.30
|
|
Weighted-average
|
|
|
25.70
|
|
|
|
21.20
|
|
FedEx Freight Segment Operating Income
FedEx Freight segment operating income increased 42% in the first quarter of 2022 driven by continued focus on revenue quality and cost management. Higher purchased transportation costs, network inefficiencies, and higher wage rates as a result of constrained labor market conditions negatively impacted results in the first quarter of 2022.
Salaries and employee benefits expense increased 15% in the first quarter of 2022 primarily due to higher volumes, increased utilization of healthcare benefits, and merit increases. Purchased transportation expense increased 41% in the first quarter of 2022 primarily due to the challenging labor market resulting in increased utilization of third-party service providers and higher rates.
Fuel expense increased 108% in the first quarter of 2022 primarily due to increased fuel prices. The net impact of fuel had a slight benefit to operating income in the first quarter of 2022 as higher fuel surcharges outpaced increased fuel prices. See the “Fuel” section of this MD&A for a description and additional discussion of the net impact of fuel on our operating results.
- 32 -
FINANCIAL CONDITION
LIQUIDITY
Cash and cash equivalents totaled $6.9 billion at August 31, 2021, compared to $7.1 billion at May 31, 2021. The following table provides a summary of our cash flows for the three-month periods ended August 31 (in millions):
|
|
2021
|
|
|
2020
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,112
|
|
|
$
|
1,245
|
|
Business realignment costs
|
|
|
36
|
|
|
|
—
|
|
Other noncash charges and credits
|
|
|
2,041
|
|
|
|
1,675
|
|
Changes in assets and liabilities
|
|
|
(1,105
|
)
|
|
|
(269
|
)
|
Cash provided by operating activities
|
|
|
2,084
|
|
|
|
2,651
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(1,570
|
)
|
|
|
(1,424
|
)
|
Proceeds from asset dispositions and other
|
|
|
20
|
|
|
|
6
|
|
Cash used in investing activities
|
|
|
(1,550
|
)
|
|
|
(1,418
|
)
|
Financing activities:
|
|
|
|
|
|
|
|
|
Principal payments on debt
|
|
|
(64
|
)
|
|
|
(45
|
)
|
Proceeds from debt issuances
|
|
|
—
|
|
|
|
959
|
|
Proceeds from stock issuances
|
|
|
84
|
|
|
|
82
|
|
Dividends paid
|
|
|
(200
|
)
|
|
|
(170
|
)
|
Purchase of treasury stock
|
|
|
(549
|
)
|
|
|
—
|
|
Other, net
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Cash (used in) provided by financing activities
|
|
|
(730
|
)
|
|
|
825
|
|
Effect of exchange rate changes on cash
|
|
|
(38
|
)
|
|
|
15
|
|
Net (decrease) increase in cash and cash equivalents
|
|
$
|
(234
|
)
|
|
$
|
2,073
|
|
Cash and cash equivalents at the end of period
|
|
$
|
6,853
|
|
|
$
|
6,954
|
|
Cash flows from operating activities decreased $567 million in the first quarter of 2022 primarily due to the timing of variable incentive compensation payments and a decrease in income and other tax liabilities, including prior year relief from certain taxes in the U.S. pursuant to the CARES Act, partially offset by lower accounts receivable due to the prior year impacts of the COVID-19 pandemic. Capital expenditures increased during the first quarter of 2022 primarily due to increased spending on package handling equipment at FedEx Ground and higher vehicle spending at FedEx Express. See “Capital Resources” for a discussion of capital expenditures during 2022 and 2021.
In January 2016, our Board of Directors authorized a stock repurchase program of up to 25 million shares. During the first quarter of 2022, we repurchased 1.9 million shares of FedEx common stock at an average price of $287.51 per share for a total of $549 million. As of August 31, 2021, 3.2 million shares remained available for repurchase under the current stock repurchase authorization. Shares under the current repurchase program may be repurchased from time to time in the open market or in privately negotiated transactions. The timing and volume of repurchases are at the discretion of management, based on the capital needs of the business, the market price of FedEx common stock, and general market conditions. No time limit was set for the completion of the program, and the program may be suspended or discontinued at any time.
- 33 -
CAPITAL RESOURCES
Our operations are capital intensive, characterized by significant investments in aircraft, package handling and sort equipment, vehicles and trailers, technology, and facilities. The amount and timing of capital investments depend on various factors, including pre-existing contractual commitments, anticipated volume growth, domestic and international economic conditions, new or enhanced services, geographical expansion of services, availability of satisfactory financing, and actions of regulatory authorities.
The following table compares capital expenditures by asset category and reportable segment for the periods ended August 31 (in millions):
|
|
Three Months Ended
|
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Percent Change
|
|
Aircraft and related equipment
|
|
$
|
764
|
|
|
$
|
773
|
|
|
|
(1
|
)
|
Package handling and ground support equipment
|
|
|
309
|
|
|
|
217
|
|
|
|
42
|
|
Vehicles and trailers
|
|
|
87
|
|
|
|
37
|
|
|
|
135
|
|
Information technology
|
|
|
183
|
|
|
|
194
|
|
|
|
(6
|
)
|
Facilities and other
|
|
|
227
|
|
|
|
203
|
|
|
|
12
|
|
Total capital expenditures
|
|
$
|
1,570
|
|
|
$
|
1,424
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FedEx Express segment
|
|
$
|
1,048
|
|
|
$
|
1,028
|
|
|
|
2
|
|
FedEx Ground segment
|
|
|
352
|
|
|
|
204
|
|
|
|
73
|
|
FedEx Freight segment
|
|
|
13
|
|
|
|
39
|
|
|
|
(67
|
)
|
FedEx Services segment
|
|
|
137
|
|
|
|
118
|
|
|
|
16
|
|
Other
|
|
|
20
|
|
|
|
35
|
|
|
|
(43
|
)
|
Total capital expenditures
|
|
$
|
1,570
|
|
|
$
|
1,424
|
|
|
|
10
|
|
Capital expenditures increased in the first quarter of 2022 primarily due to increased spending on package handling equipment at FedEx Ground and higher vehicle spending at FedEx Express.
GUARANTOR FINANCIAL INFORMATION
We are providing the following information in compliance with Rule 13-01 of Regulation S-X, “Financial Disclosures about Guarantors and Issuers of Guaranteed Securities” with respect to our senior unsecured debt securities and Pass-Through Certificates, Series 2020-1AA (the “Certificates”).
The $19.5 billion principal amount of the senior unsecured notes were issued by FedEx under a shelf registration statement and are guaranteed by certain direct and indirect subsidiaries of FedEx (“Guarantor Subsidiaries”). FedEx owns, directly or indirectly, 100% of each Guarantor Subsidiary. The guarantees are (1) unsecured obligations of the respective Guarantor Subsidiary, (2) rank equally with all of their other unsecured and unsubordinated indebtedness, and (3) are full and unconditional and joint and several. If we sell, transfer, or otherwise dispose of all of the capital stock or all or substantially all of the assets of a Guarantor Subsidiary to any person that is not an affiliate of FedEx, the guarantee of that Guarantor Subsidiary will terminate and holders of debt securities will no longer have a direct claim against such subsidiary under the guarantee.
Additionally, FedEx fully and unconditionally guarantees the payment obligation of FedEx Express in respect of the $918 million principal amount of the Certificates. See Note 4 of the accompanying unaudited condensed consolidated financial statements and Note 7 to the financial statements included in our Annual Report for additional information regarding the terms of the Certificates.
- 34 -
The following tables present summarized financial information for FedEx (as Parent) and the Guarantor Subsidiaries on a combined basis after transactions and balances within the combined entities have been eliminated.
Parent and Guarantor Subsidiaries
The following table presents the summarized balance sheet information as of August 31, 2021 and May 31, 2021 (in millions):
|
|
August 31,
2021
|
|
|
May 31,
2021
|
|
Current Assets
|
|
$
|
11,856
|
|
|
$
|
12,795
|
|
Intercompany Receivable
|
|
|
4,005
|
|
|
|
3,348
|
|
Total Assets
|
|
|
80,048
|
|
|
|
80,470
|
|
Current Liabilities
|
|
|
8,976
|
|
|
|
9,135
|
|
Intercompany Payable
|
|
|
—
|
|
|
|
—
|
|
Total Liabilities
|
|
|
55,324
|
|
|
|
55,783
|
|
The following table presents the summarized statement of income information for the three-month period ended August 31, 2021 (in millions):
Revenue
|
|
$
|
15,915
|
|
Intercompany Charges, net
|
|
|
(918
|
)
|
Operating Income
|
|
|
1,046
|
|
Intercompany Charges, net
|
|
|
31
|
|
Income Before Income Taxes
|
|
|
1,080
|
|
Net Income
|
|
$
|
821
|
|
The following tables present summarized financial information for FedEx (as Parent Guarantor) and FedEx Express (as Subsidiary Issuer) on a combined basis after transactions and balances within the combined entities have been eliminated.
Parent Guarantor and Subsidiary Issuer
The following table presents the summarized balance sheet information as of August 31, 2021 and May 31, 2021 (in millions):
|
|
August 31,
2021
|
|
|
May 31,
2021
|
|
Current Assets
|
|
$
|
5,038
|
|
|
$
|
5,281
|
|
Intercompany Receivable
|
|
|
—
|
|
|
|
—
|
|
Total Assets
|
|
|
68,141
|
|
|
|
67,084
|
|
Current Liabilities
|
|
|
4,648
|
|
|
|
4,325
|
|
Intercompany Payable
|
|
|
6,910
|
|
|
|
5,929
|
|
Total Liabilities
|
|
|
47,124
|
|
|
|
46,386
|
|
The following table presents the summarized statement of income information for the three-month period ended August 31, 2021 (in millions):
Revenue
|
|
$
|
5,952
|
|
Intercompany Charges, net
|
|
|
(470
|
)
|
Operating Income
|
|
|
136
|
|
Intercompany Charges, net
|
|
|
121
|
|
Income Before Income Taxes
|
|
|
821
|
|
Net Income
|
|
$
|
781
|
|
- 35 -
LIQUIDITY OUTLOOK
In response to current business and economic conditions as referenced above in the “Outlook” section of this MD&A, we are continuing to actively manage and optimize our capital allocation in a still challenging macroeconomic environment from the ongoing COVID-19 pandemic and labor availability constraints. We have $6.9 billion in cash and $3.5 billion in available liquidity under our $2.0 billion five-year credit agreement (the “Five-Year Credit Agreement”) and $1.5 billion 364-day credit agreement (the “364-Day Credit Agreement” and together with the Five-Year Credit Agreement, the “Credit Agreements”), and we believe that our cash and cash equivalents, cash from operations, and available financing sources will be adequate to meet our liquidity needs, which include operational requirements, expected capital expenditures, voluntary pension contributions, dividend payments, and stock repurchases.
Our cash and cash equivalents balance at August 31, 2021 includes $2.6 billion of cash in foreign jurisdictions associated with our permanent reinvestment strategy. We are able to access the majority of this cash without a material tax cost and do not believe that the indefinite reinvestment of these funds impairs our ability to meet our U.S. domestic debt or working capital obligations.
Our capital expenditures are expected to be approximately $7.2 billion in 2022, a $1.3 billion increase from 2021. While we continue to invest in our business, the capital intensity relative to revenue remains below historical levels. Total capital expenditures will include strategic investments to increase capacity to support elevated volume levels, aircraft modernization at FedEx Express, and investments in productivity and safety. We invested $0.8 billion in aircraft and related equipment in the first quarter of 2022 and expect to invest an additional $1.2 billion for aircraft and related equipment during the remainder of 2022. In addition, we are making investments over multiple years of approximately $1.5 billion to significantly expand the FedEx Express Indianapolis hub and approximately $1.5 billion to modernize the FedEx Express Memphis World Hub. We expect these investments in hubs will provide productivity gains. We anticipate that our cash flow from operations will be sufficient to fund our capital expenditures for the remainder of 2022. Historically, we have been successful in obtaining unsecured financing from both domestic and international sources, although the marketplace for such investment capital can become restricted depending on a variety of economic factors.
We have several aircraft modernization programs underway that are supported by the purchase of Boeing 777 Freighter and Boeing 767-300 Freighter (“B767F”) aircraft. These aircraft are significantly more fuel-efficient per unit than the aircraft types previously utilized, and these expenditures are necessary to achieve significant long-term operating savings and to replace older aircraft. Our ability to delay the timing of these aircraft-related expenditures is limited without incurring significant costs to modify existing purchase agreements.
During the first quarter of 2022, FedEx Express exercised options to purchase an additional 20 B767F aircraft, ten of which will be delivered in 2024 and ten of which will be delivered in 2025.
We have a shelf registration statement filed with the Securities and Exchange Commission (“SEC”) that allows us to sell, in one or more future offerings, any combination of our unsecured debt securities and common stock and allows pass-through trusts formed by FedEx Express to sell, in one or more future offerings, pass-through certificates.
The Five-Year Credit Agreement expires in March 2026 and includes a $250 million letter of credit sublimit. The 364-Day Credit Agreement expires in March 2022. The Credit Agreements are available to finance our operations and other cash flow needs. See Note 4 of the accompanying unaudited condensed consolidated financial statements for a description of the terms and significant covenants of the Credit Agreements.
For the remainder of 2022, we anticipate making voluntary contributions of $500 million to our tax-qualified U.S. domestic pension plans (“U.S. Pension Plans”). We do not anticipate contributions to our U.S. Pension Plans will be required for the foreseeable future based on our funded status and the fact we have a credit balance related to our cumulative excess voluntary pension contributions over those required that exceeds $3 billion. The credit balance is subtracted from plan assets to determine the minimum funding requirements. Therefore, we could eliminate all required contributions to our principal U.S. Pension Plans for several years if we were to choose to waive part of that credit balance in any given year. Our U.S. Pension Plans have ample funds to meet expected benefit payments.
Standard & Poor’s has assigned us a senior unsecured debt credit rating of BBB, a Certificates rating of AA-, a commercial paper rating of A-2, and a ratings outlook of “stable.” Moody’s Investors Service has assigned us an unsecured debt credit rating of Baa2, a Certificates rating of Aa3, a commercial paper rating of P-2, and a ratings outlook of “stable.” If our credit ratings drop, our interest expense may increase. If our commercial paper ratings drop below current levels, we may have difficulty utilizing the commercial paper market. If our senior unsecured debt credit ratings drop below investment grade, our access to financing may become limited.
CONTRACTUAL CASH OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
There have been no material changes to the contractual commitments described in Part II, Item 7 in our Annual Report.
- 36 -
We do not have any guarantees or other off-balance sheet financing arrangements, including variable interest entities, which we believe could have a material impact on our financial condition or liquidity.
See Note 8 to the accompanying unaudited condensed consolidated financial statements for additional information on our purchase commitments.
OTHER BUSINESS MATTERS
On June 24, 2019, FedEx filed suit in U.S. District Court in the District of Columbia seeking to enjoin the U.S. Department of Commerce (the “DOC”) from enforcing prohibitions contained in the Export Administration Regulations against FedEx. On September 11, 2020, the court granted the DOC’s motion to dismiss the lawsuit. On November 5, 2020, we appealed this decision.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make significant judgments and estimates to develop amounts reflected and disclosed in the financial statements. In many cases, there are alternative policies or estimation techniques that could be used. We maintain a thorough process to review the application of our accounting policies and to evaluate the appropriateness of the many estimates that are required to prepare the financial statements of a complex, global corporation. However, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and new or better information.
GOODWILL. Goodwill is tested for impairment between annual tests whenever events or circumstances make it more likely than not that the fair value of a reporting unit has fallen below its carrying value. We do not believe there has been any other change of events or circumstances that would indicate that a reevaluation of the goodwill of our reporting units is required as of August 31, 2021, nor do we believe the goodwill of our reporting units is at risk of failing impairment testing. For additional details on goodwill impairment testing, refer to Note 1 to the financial statements included in our Annual Report.
Information regarding our critical accounting estimates can be found in our Annual Report, including Note 1 to the financial statements therein. Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors and with our independent registered public accounting firm.
FORWARD-LOOKING STATEMENTS
Certain statements in this report, including (but not limited to) those contained in “Business Realignment Costs,” “Income Taxes,” “Outlook,” and “Liquidity Outlook,” and the “General,” “Financing Arrangements,” “Retirement Plans,” “Commitments,” and “Contingencies” notes to our unaudited condensed consolidated financial statements, are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results of operations, cash flows, plans, objectives, future performance, and business and the assumptions underlying such statements. Forward-looking statements include those preceded by, followed by, or that include the words “will,” “may,” “could,” “would,” “should,” “believes,” “expects,” “anticipates,” “plans,” “estimates,” “targets,” “projects,” “intends,” or similar expressions. These forward-looking statements involve risks and uncertainties. Actual results may differ materially from those contemplated (expressed or implied) by such forward-looking statements because of, among other things, potential risks and uncertainties, such as:
•
|
economic conditions in the global markets in which we operate;
|
•
|
significant changes in the volumes of shipments transported through our networks, customer demand for our various services, or the prices we obtain for our services;
|
•
|
our ability to meet our labor and purchased transportation needs while controlling related costs and maintain our company culture;
|
•
|
a significant data breach or other disruption to our technology infrastructure;
|
•
|
the continuing impact of the COVID-19 pandemic;
|
•
|
anti-trade measures and additional changes in international trade policies and relations;
|
•
|
our ability to successfully implement our business strategy, effectively respond to changes in market dynamics and customer preferences, and achieve the anticipated benefits and associated cost savings of such strategies and actions, including our ability to successfully implement our FedEx Express workforce reduction plan in Europe and to continue to transform and optimize the FedEx Express international business, particularly in Europe;
|
- 37 -
•
|
damage to our reputation or loss of brand equity;
|
•
|
changes in the business or financial soundness of the U.S. Postal Service (“USPS”), including strategic changes to its operations to reduce its reliance on the air network of FedEx Express, or our relationship with the USPS;
|
•
|
the price and availability of jet and vehicle fuel;
|
•
|
our ability to manage our network capacity and cost structure for capital expenditures and operating expenses, and match it to shifting and future customer volume levels;
|
•
|
the impact of intense competition on our ability to maintain or increase our prices (including our fuel surcharges in response to rising fuel costs) or to maintain or grow our revenue and market share;
|
•
|
our ability to execute and effectively operate, integrate, leverage, and grow acquired businesses, including TNT Express, and to continue to support the value we allocate to these acquired businesses, including their goodwill and other intangible assets;
|
•
|
the future rate of e-commerce growth and our ability to successfully expand our e-commerce services portfolio;
|
•
|
the timeline for recovery of passenger airline cargo capacity;
|
•
|
any impacts on our businesses resulting from evolving or new U.S. domestic or international government regulations, laws, policies, and actions, which could be unfavorable to our business, including regulatory or other actions affecting data protection; global aviation or other transportation rights; increased air cargo, pilot flight and duty time, and other security or safety requirements; export controls; the use of new technology and accounting; trade (such as protectionist measures or restrictions on free trade); foreign exchange intervention in response to currency volatility; labor (such as joint employment standards or changes to the Railway Labor Act of 1926, as amended, affecting FedEx Express employees); environmental (such as global climate change legislation); or postal rules;
|
•
|
adverse changes in tax laws, regulations, and interpretations or challenges to our tax positions;
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the impact of costs related to lawsuits in which it is alleged that FedEx Ground should be treated as an employer of drivers employed by service providers engaged by FedEx Ground;
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increased insurance and claims expenses related to workers’ compensation claims, vehicle accidents, property and cargo loss, general business liabilities, and benefits paid under employee healthcare and disability programs;
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the impact of any international conflicts or terrorist activities on the United States and global economies in general, the transportation industry, or us in particular, and what effects these events will have on our costs or the demand for our services;
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our ability to quickly and effectively restore operations following adverse weather or a localized disaster or disturbance in a key geography;
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our ability to achieve our goal of carbon neutrality for our global operations by calendar 2040;
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our ability to successfully mitigate unique technological, operational, and regulatory risks related to our autonomous delivery strategy;
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our ability to maintain good relationships with our employees and avoid attempts by labor organizations to organize groups of our employees, which could significantly increase our operating costs and reduce our operational flexibility, as well as the outcome of future negotiations to reach new collective bargaining agreements;
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increasing costs, the volatility of costs and funding requirements, and other legal mandates for employee benefits, especially pension and healthcare benefits;
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the impacts of global climate change;
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widespread outbreak of an illness or any other communicable disease, or any other public health crisis;
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the increasing costs of compliance with federal, state, and foreign governmental agency mandates (including the Foreign Corrupt Practices Act and the U.K. Bribery Act) and defending against inappropriate or unjustified enforcement or other actions by such agencies;
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changes in foreign currency exchange rates, especially in the euro, Chinese yuan, British pound, Canadian dollar, Australian dollar, Hong Kong dollar, Mexican peso, Japanese yen, and Brazilian real, which can affect our sales levels and foreign currency sales prices;
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any liability resulting from and the costs of defending against class-action, derivative, and other litigation, such as wage-and-hour, joint employment, securities, and discrimination and retaliation claims, and any other legal or governmental proceedings, including the matters discussed in Note 9 of the accompanying unaudited condensed consolidated financial statements;
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the impact of technology developments on our operations and on demand for our services, and our ability to continue to identify and eliminate unnecessary information-technology redundancy and complexity throughout the organization;
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governmental underinvestment in transportation infrastructure, which could increase our costs and adversely impact our service levels due to traffic congestion, prolonged closure of key thoroughfares, or sub-optimal routing of our vehicles and aircraft;
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disruptions in global supply chains, which can limit the access of FedEx and our service providers to vehicles and other key capital resources and increase our costs;
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constraints, volatility, or disruption in the capital markets, our ability to maintain our current credit ratings, commercial paper ratings, senior unsecured debt, and pass-through certificate credit ratings, and our ability to meet Credit Agreement financial covenants;
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the alternative interest rates we are able to negotiate with counterparties pursuant to the relevant provisions of our Credit Agreements following cessation of the publication of the London Interbank Offered Rate in the event the euro interbank offered rate also ceases to exist and we make borrowings under the agreements; and
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other risks and uncertainties you can find in our press releases and SEC filings, including the risk factors identified under the heading “Risk Factors” in “Management’s Discussion and Analysis of Results of Operations and Financial Condition” in our Annual Report, as updated by our quarterly reports on Form 10-Q.
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As a result of these and other factors, no assurance can be given as to our future results and achievements. Accordingly, a forward-looking statement is neither a prediction nor a guarantee of future events or circumstances and those future events or circumstances may not occur. You should not place undue reliance on the forward-looking statements, which speak only as of the date of this report. We are under no obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events, or otherwise.
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