10-QPeriod: Q3 FY2016

FEDEX CORP Quarterly Report for Q3 Ended Feb 29, 2016

Filed March 17, 2016For Securities:FDX

Summary

FedEx Corporation's (FDX) third quarter and nine-month results for the period ending February 29, 2016, show mixed performance for investors. While the company reported revenue growth driven by FedEx Ground and the inclusion of acquired businesses, overall profitability saw a decline. Net income for the three months ended February 29, 2016, was $507 million, down from $628 million in the prior year period, leading to diluted earnings per share of $1.84 compared to $2.18. This decrease was largely impacted by significant legal provisions, including $204 million for independent contractor litigation and $69 million for a U.S. Customs and Border Protection matter, which together reduced earnings by $0.61 per diluted share. Despite these headwinds, FedEx Express demonstrated a strong rebound in operating income and margin, increasing by 51% and 280 basis points respectively. This improvement was driven by yield management and cost control initiatives. FedEx Ground's operating income remained flat, impacted by increased operational costs and integration of acquired businesses, though its revenue saw substantial growth. The company continues to invest heavily in capital expenditures, with a significant portion allocated to FedEx Ground's facility expansion and FedEx Express's aircraft. The pending acquisition of TNT Express remains a key strategic focus, expected to close in the first half of calendar year 2016.

Financial Highlights

42 data points
Beta

Revenue

$12.65B

Net Income

$507.00M

4.0% Net Margin

EPS (Diluted)

$1.84

Total Assets

$37.82B

Cash & Equivalents

$2.84B

Free Cash Flow

$1.34B

Financial Statements
Beta
Revenue$12.65B
Operating Expenses$11.79B
Operating Income$864.00M
Net Income$507.00M
EPS (Basic)$1.86
EPS (Diluted)$1.84
Shares Outstanding (Basic)272.00M
Shares Outstanding (Diluted)275.00M

Key Highlights

  • 1Consolidated operating income decreased by 17% to $864 million for the third quarter and by 1% to $3,145 million for the nine months, primarily due to significant legal provisions.
  • 2FedEx Express saw a substantial improvement in operating income (up 51% to $595 million) and operating margin (up to 9.1%) for the third quarter, driven by yield management and cost controls.
  • 3FedEx Ground's revenue increased significantly (30% for the quarter, 31% for the nine months) due to volume and yield growth, and the inclusion of GENCO, but operating income remained flat.
  • 4Net income for the third quarter decreased by 19% to $507 million, with diluted EPS falling to $1.84 from $2.18 in the prior year.
  • 5Significant legal charges, including $204 million for independent contractor litigation and $69 million for a U.S. Customs and Border Protection matter, impacted the results by approximately $0.61 per diluted share.
  • 6Capital expenditures increased by 20% to $3,562 million for the nine-month period, with substantial investments in sort facilities (FedEx Ground) and aircraft (FedEx Express).
  • 7The company reaffirmed its expectation to close the acquisition of TNT Express in the first half of calendar year 2016.

Frequently Asked Questions

The decrease in net income and EPS was primarily due to significant provisions for legal matters, including $204 million for independent contractor litigation and $69 million for a U.S. Customs and Border Protection matter. These provisions negatively impacted diluted earnings per share by approximately $0.61.

FedEx Express showed strong performance, with operating income increasing by 51% to $595 million and operating margin improving to 9.1% for the third quarter. This improvement was driven by better yield management in U.S. domestic and international export services, along with cost control initiatives and the benefits of the profit improvement program.

FedEx expects to complete the acquisition of TNT Express in the first half of calendar year 2016. The company anticipates that this acquisition will expand its global portfolio, particularly in Europe, lower costs, and accelerate global growth. The outlook for fiscal year 2016 does not include any impact from this acquisition.

FedEx expects earnings growth in the fourth quarter and full year of 2016, driven by improvements at FedEx Express and FedEx Ground from volume growth and yield management. However, weaker industrial production is expected to negatively impact FedEx Freight's revenue and earnings. The outlook is dependent on external factors like fuel prices and global economic growth, and does not include impacts from the TNT Express acquisition.