FedEx Corporation (NYSE:FDX) reported adjusted earnings of $2.51 per diluted share for the third quarter ended February 29, compared to adjusted earnings of $2.03 per diluted share a year ago. Without adjustments, FedEx reported earnings of $1.84 for the third quarter compared to $2.18 per diluted share last year.
This year’s quarterly consolidated earnings have been adjusted for expenses related to certain legal matters ($0.61 per diluted share) and the pending acquisition of TNT Express ($0.06 per diluted share).
“Our strong financial performance was driven by increasing demand for our broad portfolio of FedEx business solutions which helped increase revenue and adjusted profit for the corporation,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer. “We sincerely appreciate the peak season efforts of our FedEx team members who delivered great service despite the challenges of stronger-than-expected shipping demand, driven by the growth in e-commerce.”
Third Quarter Results
FedEx Corp. reported the following consolidated results for the third quarter:
|Fiscal 2016||Fiscal 2015|
|As Reported |
|Revenue||$12.7 billion||$12.7 billion||$11.7 billion||$11.7 billion|
|Operating income||$1.16 billion||$864 million||$971 million||$1.04 billion|
|Net income||$692 million||$507 million||$586 million||$628 million|
Adjusted operating income rose 19% year over year primarily due to improved yield management and the continued positive impacts from profit improvement program initiatives at FedEx Express. The net impact of fuel and currency exchange rates also improved results. These benefits were partially offset by weaker operating results at FedEx Freight and FedEx Ground.
During the quarter, the company acquired 7.3 million shares of FedEx common stock. Share repurchases benefited the quarter’s results by $0.07 per diluted share year over year.
FedEx is tightening its adjusted earnings forecast to $10.70 to $10.90 per diluted share for fiscal 2016 before year-end mark-to-market pension accounting adjustments (“MTM adjustments”), compared to the previous forecast of $10.40 to $10.90 per diluted share. The outlook assumes moderate economic growth and excludes certain legal matters as well as any TNT-related costs or operating results. The capital spending forecast for the fiscal year is now $4.8 billion.
“We now expect our fiscal 2016 adjusted earnings to be up 20% to 22% over last year, as we continue to benefit from our execution of the profit improvement program,” said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer. “Our positive financial momentum should continue into our upcoming fiscal 2017, where we expect solid growth in earnings and cash flow.”
FedEx Express Segment
For the third quarter, the FedEx Express segment reported:
- Revenue of $6.56 billion, down 1% from last year’s $6.66 billion
- Operating income of $595 million, up 51% from $393 million a year ago
- Operating margin of 9.1%, up from 5.9% the previous year
Revenue decreased slightly as lower fuel surcharges and unfavorable currency exchange rates offset improved yield management and a 2% increase in U.S. domestic volume.
Operating results improved due to yield management efforts and U.S. domestic volume growth as well as the ongoing benefits from profit improvement program initiatives, which continued to improve revenue quality and constrain expense growth. Fuel and currency exchange rate changes had a positive net impact on the quarter.
FedEx Ground Segment
For the third quarter, the FedEx Ground segment reported:
- Revenue of $4.41 billion, up 30% from last year’s $3.39 billion
- Operating income of $557 million, down from $559 million a year ago
- Operating margin of 12.6%, down from 16.5% the previous year
Revenue increased due to an 11% increase in FedEx Ground volume, improved yield management, the recording of FedEx SmartPost revenues on a gross basis versus the previous net treatment and the inclusion of GENCO results for the entire quarter versus one month in the prior year’s results.
Operating results were negatively impacted by higher costs, driven significantly by network expansion and by peak season demand that exceeded both volume and package size expectations. Increased self-insurance expense and higher purchased transportation rates also negatively impacted the quarter. The change in FedEx SmartPost revenue reporting and the inclusion of GENCO results collectively reduced the operating margin year-over-year by 1.9 percentage points.
FedEx Ground has reached agreements in principle to settle all of the 19 cases on appeal in the multidistrict independent contractor litigation. The multidistrict court had found the owner-operators in these cases to be contractors as a matter of law, and the disputes involve a contractor model which FedEx Ground has not operated since 2011. In the third quarter, we recognized a liability at Corporate for the net expected loss of $204 million for these settlements and other contractor-related proceedings. The settlements will require court approval.
FedEx Freight Segment
For the third quarter, the FedEx Freight segment reported:
- Revenue of $1.45 billion, up 1% from last year’s $1.43 billion
- Operating income of $56 million, down 16% from $67 million a year ago
- Operating margin of 3.9%, down from 4.7% the previous year
Revenue increased as less-than-truckload (LTL) average daily shipments increased 7%, mostly offset by lower fuel surcharges and weight per shipment.
Operating results declined primarily due to salaries and employee benefits expense outpacing volume growth. (Original Source)
Shares of FedEx Corporation are up 5% in after-hours trading. FDX has a 1-year high of $185.19 and a 1-year low of $119.71. The stock’s 50-day moving average is $134.94 and its 200-day moving average is $145.65.
On the ratings front, FedEx has been the subject of a number of recent research reports. In a report released yesterday, Credit Suisse analyst Allison Landry maintained a Buy rating on FDX, with a price target of $184, which implies an upside of 27.5% from current levels. Separately, on March 10, RBC’s John Barnes reiterated a Hold rating on the stock and has a price target of $153.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Allison Landry and John Barnes have a total average return of 0.5% and -4.6% respectively. Landry has a success rate of 45.5% and is ranked #1747 out of 3717 analysts, while Barnes has a success rate of 44.7% and is ranked #3044.
Overall, 2 research analysts have assigned a Hold rating and 8 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $177.50 which is 23.0% above where the stock opened today.
FedEx Corp provides a portfolio of transportation, e-commerce and business services. It operates in four business: FedEx Express, FedEx Ground, FedEx Freight and FedEx Services.