FedEx posts solid Fiscal Year Q4 and full-year earnings

Late yesterday, Memphis-based FedEx reported strong fiscal fourth quarter and full-year fiscal 2016 results.

Quarterly revenue at $13 billion was up 7 percent, while the company had a $70 million net income loss to $897 million and a $68 million net income loss to $1.51 billion. And it had a earnings per share of $3.30, which was 20 percent higher than a year ago and topped Wall Street expectations of $3.28.

For fiscal year 2016, net income was up 45 percent at $1.82 billion, and operating income was up 39 percent at $3.08 billion. Earnings per share was up 44 percent at $6.51, and revenue at $50.4 billion was up 6 percent and marked the first time annual revenue was more than $50 million.

“We believe we will continue to increase margins, earnings per share, cash flows, and capital returns over the next several years, given expectations for moderate economic growth and excluding TNT financial results and pension mark-to-market costs,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer, on the company’s earnings call yesterday. “As we integrate the acquisitions of TNT, GENCO, and FedEx CrossBorder [we] will continue making investments in modernizing the FedEx Express aircraft fleet and expanding the highly automated FedEx ground network to extend our leadership in the rapidly growing e-commerce market. These initiatives are integral to achieving our goals.”

Addressing the economy, T. Michael Glenn, FedEx executive vice president, market development and corporate communications, said on the call that the FedEx U.S. GDP forecast is now at 1.8 percent for calendar year 2016, with the global GDP for 2016 pegged at 2.3 percent and 2.7 percent for 2017.
Individual unit quarterly performances: FedEx Express quarterly revenue was up 0.3 percent at $6.72 billion, with an operating margin of 11.3 percent, up from last year’s 4.8 percent and an operating income of $757 million for a 135 percent annual increase. FedEx said that revenue was up slightly due to improved yield management and the benefit of one additional operating day that offset lower fuel surcharges and unfavorable currency exchange rates.

Revenue at FedEx Ground increased 20 percent at $4.29 billion, with an operating margin of 15.3 percent, compared to 16.9 percent last year, and an operating income of $656 million for a 9 percent annual gain. Company officials explained that revenues benefited from FedEx Ground volume heading up ten percent, as well as a 7 percent gain in revenue per package as FedEx SmartPost revenues are now recorded on a gross revenue basis rather than its previous net treatment, which took effect in September 2015.

FedEx Freight revenue saw a 2 percent increase to $1.61 billion, and operating income was flat at $137 million. Operating margin at 8.5 percent was down slightly from 8.7 percent a year ago.  Average daily shipments—at 102,845—were up 8 percent, and weight per shipment—at 1,173—was down 2.6 percent. Revenue per hundredweight was down 2.9 percent at $19.33. The 8 percent gain in average daily shipment growth and an extra operating day helped to offset the impact of lower fuel surcharges and weight per shipment, said FedEx.

Glenn explained that the growth of e-commerce continues to outpace GDP growth both in the U.S and globally.

“E-commerce has become [key] for consumers acquiring goods around the world, but the success of e-commerce continues to be dependent on transportation companies ability to reliably and quickly make residential deliveries around the world,” he said. “As we noted during our last conference call on earnings, more than 95% of e-commerce packages in the U.S are delivered by FedEx, UPS, and the United States Postal Service, with whom we have a strategic relationship to transport their priority mail. E-commerce would be impossible without these companies and our expansive networks. If you were to isolate the FedEx e-commerce business, it would become clear FedEx is one of the most profitable e-commerce companies in business today.”

TNT integration: FedEx’ recent acquisition of TNT was a major topic of discussion on the earnings call.

Dave Bronczek, President and CEO of FedEx Express, said on the call that the company has had a team on the ground for operations, sales, marketing, and IT for several months, which he said will be instrumental in establishing a company that the company believes will be very strong and powerful.

“I ran FedEx Europe for many years and TNT was my partner over there in the outlying area,” he said. “So, I already knew that their service was good. I already knew that their culture aligned up with our culture. I was over there on day one for the integration, 28 days ago and I can tell you that they’re excited and we’re excited. So going forward you’re going to have the integration take place that needs to take place so that we make sure we do it right. And when we come out of the integration process, we have the most powerful, service, cultural for people, and profitable business that you can have over there in Europe and that will be the case.”

Jerry Hempstead, principal of Hempstead Consultants, said that the TNT acquisition is is going to make FedEx more present in Europe and will certainly improve their service and long term reduce their operating costs. Also long term the elimination of a major player from the competitive marketplace will set the stage for higher costs for shippers.

“Overall the quarter in and of itself was unremarkable because there was one additional working day, they had a rate increase and a fuel surcharge adjustment, and many accessorial increases that were effective in January, all of which was revenue enhancing,” he said. “That said if the economy does not begin to tick upward, shippers may be faced with a 2017 rate increase greater than has been seen in the past. Year over year comparisons are always a bear, but when there are only two players left in the domestic landscape, there is little a shipper can do but pay the fare if they want to get their orders delivered.”