10-QPeriod: Q3 FY2020

FEDEX CORP Quarterly Report for Q3 Ended Feb 29, 2020

Filed March 17, 2020For Securities:FDX

Summary

FedEx Corporation's third quarter fiscal year 2020 results, ending February 29, 2020, show a mixed performance influenced by global economic conditions and the emerging COVID-19 pandemic. While consolidated revenue saw a slight increase of 3% to $17.5 billion for the quarter, driven primarily by residential delivery volume growth at FedEx Ground, profitability declined significantly. Consolidated operating income dropped 55% to $411 million, and net income fell 57% to $315 million, resulting in diluted EPS of $1.20. The company faced headwinds from a weaker global economy, the initial impacts of COVID-19 disrupting supply chains and consumer spending, a large customer loss, and increased operating costs. These factors, along with a shift towards lower-yielding services and competitive pricing, particularly impacted the FedEx Express segment, which saw a 65% decrease in operating income. FedEx Ground also experienced a 39% decline in operating income despite revenue growth, due to higher self-insurance accruals and expansion costs. FedEx Freight, however, showed a positive trend with a 16% increase in operating income driven by yield management.

Financial Highlights

44 data points
Beta

Revenue

$17.49B

Net Income

$315.00M

1.8% Net Margin

EPS (Diluted)

$1.20

Total Assets

$70.01B

Cash & Equivalents

$1.77B

Free Cash Flow

$1.20B

Financial Statements
Beta
Revenue$17.49B
Operating Expenses$17.08B
Operating Income$411.00M
Net Income$315.00M
EPS (Basic)$1.21
EPS (Diluted)$1.20
Shares Outstanding (Basic)261.00M
Shares Outstanding (Diluted)262.00M

Key Highlights

  • 1Consolidated revenue increased 3% to $17.5 billion in Q3 FY2020, primarily due to strong performance at FedEx Ground.
  • 2Consolidated operating income declined sharply by 55% to $411 million, reflecting significant headwinds.
  • 3Consolidated net income and diluted EPS decreased by 57% and 57%, respectively, to $315 million and $1.20.
  • 4FedEx Express segment operating income was down 65% due to weaker global economic conditions, COVID-19 impacts, and a large customer loss.
  • 5FedEx Ground revenue grew 11%, but operating income fell 39% due to higher operating costs and self-insurance accruals.
  • 6FedEx Freight segment operating income increased 16%, driven by improved yields and cost management.
  • 7Capital expenditures increased significantly by 28% to $1.4 billion in Q3 FY2020, with higher investments across most segments, particularly facilities and information technology.

Frequently Asked Questions

The significant decline in operating income and net income is attributed to a combination of factors including weaker global economic conditions, the initial impacts of the COVID-19 pandemic disrupting supply chains and consumer spending, the loss of business from a large customer, and increased operating costs. These challenges, coupled with a shift towards lower-yielding services and a competitive pricing environment, negatively impacted profitability across the company, particularly in the FedEx Express segment.

FedEx Ground showed strong revenue growth of 11% in the third quarter, driven by residential delivery volume increases, largely fueled by e-commerce. However, its operating income decreased by 39%. This decline is due to increased costs related to service expansions (including seven-day residential delivery), higher self-insurance accruals, and the loss of business from a large customer. Despite the profit dip, the segment's volume growth indicates continued demand for its services.

FedEx anticipates that weaker global economic conditions will be exacerbated in the fourth quarter by the ongoing impacts of the COVID-19 pandemic, including disruptions to manufacturing and supply chains. While they expect continued revenue growth at FedEx Ground, FedEx Express and FedEx Freight are expected to be negatively impacted. Higher operating costs at FedEx Ground from expanded delivery services are also expected to weigh on results. The company is closely monitoring the situation and is prepared to manage network capacity if global economic conditions further deteriorate.

Integration expenses for TNT Express totaled $72 million in the third quarter and $207 million for the nine months of 2020. The company continues to execute integration plans in Europe, aiming for substantial completion of ground network interoperability by the end of the fourth quarter of 2020. The full benefits and accelerated synergies from the combined network are expected in 2021 and beyond, after further network optimization and completion of international air network interoperability in 2022.