10-QPeriod: Q1 FY2019

FEDEX CORP Quarterly Report for Q1 Ended Aug 31, 2018

Filed September 17, 2018For Securities:FDX

Summary

FedEx Corporation reported strong first-quarter results for fiscal year 2019, driven by broad-based revenue growth across its transportation segments and a significant recovery from the prior year's NotPetya cyberattack. Consolidated revenues increased by 11%, reaching $17.1 billion, while operating income rose by 10% to $1.1 billion. Net income saw a substantial 40% increase to $835 million, translating to diluted earnings per share of $3.10, up from $2.19 in the prior year period. The company benefited from improved customer demand, increased package and freight volumes, and higher yields, particularly at FedEx Express and FedEx Ground. Despite increased operating expenses, including higher salaries and purchased transportation costs, the company managed to maintain its consolidated operating margin at 6.3%. The adoption of new accounting guidance for pension costs and the impact of the Tax Cuts and Jobs Act (TCJA) also influenced reported figures, notably reducing the effective tax rate. Looking ahead, FedEx remains focused on integrating TNT Express and improving operational efficiency across its networks.

Financial Highlights

45 data points
Beta

Revenue

$17.05B

76.7% Gross Margin

Net Income

$835.00M

4.9% Net Margin

EPS (Diluted)

$3.10

Total Assets

$51.90B

Cash & Equivalents

$2.37B

Free Cash Flow

$701.00M

Financial Statements
Beta
Revenue$17.05B
Cost of Revenue$3.97B
Gross Profit$13.09B
Operating Expenses$15.98B
Operating Income$1.07B
Net Income$835.00M
EPS (Basic)$3.15
EPS (Diluted)$3.10
Shares Outstanding (Basic)265.00M
Shares Outstanding (Diluted)269.00M

Key Highlights

  • 1Consolidated revenues grew 11% to $17.1 billion, with all transportation segments contributing to the growth.
  • 2Net income increased by a significant 40% to $835 million, and diluted EPS rose by 42% to $3.10.
  • 3FedEx Express saw a 10% revenue increase, aided by recovery from the NotPetya cyberattack, higher freight volumes, and yield growth.
  • 4FedEx Ground reported a 13% revenue increase, driven by volume growth and higher yields, reflecting continued e-commerce expansion.
  • 5FedEx Freight's revenue grew 18%, supported by higher revenue per shipment and increased average daily shipments.
  • 6The company's operating margin remained stable at 6.3%, despite increased operating expenses such as salaries and purchased transportation.
  • 7FedEx adopted new accounting guidance for pension costs, impacting operating income presentation but not net income or EPS.
  • 8The Tax Cuts and Jobs Act (TCJA) resulted in a significant tax benefit, lowering the effective tax rate and boosting net income.

Frequently Asked Questions

The significant increase in net income and EPS was primarily driven by a strong recovery from the negative impacts of the NotPetya cyberattack experienced in the prior year, coupled with broad-based revenue growth across all transportation segments due to increased volumes and improved yields. Additionally, a favorable tax rate resulting from the Tax Cuts and Jobs Act (TCJA) contributed significantly to the bottom line.

In the prior year's first quarter, the NotPetya cyberattack had an estimated negative impact of $300 million on FedEx Express results. In the current quarter, the company experienced a recovery from these impacts, leading to increased revenues and volumes, particularly in international markets, as operations normalized and IT systems were restored. This recovery is a key reason for the substantial year-over-year improvement.

FedEx expects to incur aggregate integration program expenses, including restructuring charges at TNT Express, of approximately $1.5 billion over the four years through 2020, with approximately $450 million anticipated during fiscal year 2019. The integration process is complex and spans over 200 countries and territories, with substantial completion targeted by the end of 2020.

FedEx's indexed fuel surcharges are designed to mitigate the impact of fuel price fluctuations. In the first quarter, higher fuel surcharges more than offset increased fuel prices, resulting in a net benefit to operating income. The company actively reviews and updates its fuel surcharge methodology to adapt to market conditions.