FedEx’s holiday-quarter operating profits top forecasts

By Sony Kassam

FedEx Corp. turned in stronger-than-expected third quarter results, which the package-delivery giant said reflected higher-than-expected demand during the holiday season when shipments peak.

In the quarter ended Feb. 29, the Memphis, Tennessee-based package-delivery giant said net income tumbled 19 percent to $507 million, or $1.84 per diluted share, from $628 million, or $2.18 per share in the year-ago quarter.

Excluding expenses related to legal matters and the pending acquisition of Dutch delivery firm TNT Express, FedEx said, adjusted earnings per share rose to $2.51 from $2.03 in the year-ago period. The latest quarter’s results easily topped the $2.34 a share that analysts surveyed by Yahoo Finance had predicted.

FedEx’s revenues climbed 8 percent to $12.65 billion from $11.72 billion a year ago, exceeding the $12.38 billion analysts were expecting.

Investors were pleased with the results, which were issued after the market’s close Wednesday evening: In late-afternoon New York Stock Exchange trading Thursday, FedEx shares were trading up $15.75, or 10.92 percent, at $160.02.


Key figures from FedEx’s third quarter earnings results. (Sony Kassam/MEDILL)

Mike Glenn, president and chief executive officer of FedEx Services, called the record peak season “historic” and attributed it to the growth of e-commerce.

“Demand for residential deliveries across the industry surpassed expectations as consumers increased online shopping in record numbers, not only with their higher volumes, but the types of goods purchased online increased,” said Glenn during the third quarter conference call Wednesday. “FedEx experienced record demand including multiple days of greater than 25 million packages delivered, which is more than double our average daily volume.”

FedEx is also benefiting from cheap fuel costs. Fuel expenses for the quarter were $537 million versus $810 million last year.

As consumer-buying habits are changing, Glenn also noted that FedEx saw a “significant increase in non-traditional items now being purchased online” such as mattresses and big screen TVs. This change in online shopping preferences orchestrates an operational challenge for FedEx.

Still, Alan Graf, executive vice president and chief financial officer, said the company expects adjusted earnings to surge in the fiscal 2016 year, excluding legal costs as well as any TNT integration costs.

“We are updating the lower part of the range for our adjusted fiscal year 2016 earnings guidance to $10.70 before year-end mark-to-market pension accounting adjustments,” he said during the conference call. “The new range of $10.70 to $10.90 represents adjusted earnings per share growth of 20 percent to 22 percent year-over-year.”

The company’s forecast earnings range for the year’s end surpasses the $10.56 analysts are expecting.

“Our positive financial momentum should continue into our upcoming fiscal 2017,” Graf said, “where we expect solid growth in earnings and cash flow.”

The CFO also explained that the earnings expectations depend on the outcome of several external factors such as fuel prices and growth in the global economy, but said FedEx ultimately has high hopes for the rest of the calendar year.

“We remain confident that we will close the acquisition in the first half of calendar year 2016 and we were very pleased with TNT’s recently reported improving operating performance,” Graf said to analysts. “We want to prove this landmark acquisition is expected to bring over 50,000 new team members to our ranks and significantly improve our global competitive position.”

Photo at top: FedEx enjoyed cheap fuel expenses in the third quarter ended Feb. 29. (BriYYZ/FLICKR)