Le Lézard
Classified in: Transportation, Business, Covid-19 virus
Subjects: EARNINGS, Conference Call, Webcast, Stock Sale/Buyback

FedEx Corp. Reports Higher Second Quarter Operating Income


FedEx Corp. (NYSE: FDX) today reported financial results for the quarter ended November 30.

"Our operating income increased during the quarter, thanks to the enormous efforts of our team members. We are nearing the finish line of another robust peak shipping season, and we salute our more than 600,000 team members worldwide for their dedication in delivering the holidays to our customers," said Frederick W. Smith, FedEx Corp. chairman and chief executive officer.

FedEx reported (adjusted measures exclude the items listed below for the applicable fiscal year):

 

 

Fiscal 2022

 

Fiscal 2021

 

 

As Reported
(GAAP)

 

Adjusted
(non-GAAP)

 

As Reported
(GAAP)

 

Adjusted
(non-GAAP)

Revenue

 

$23.5 billion

 

$23.5 billion

 

$20.6 billion

 

$20.6 billion

Operating income

 

$1.60 billion

 

$1.68 billion

 

$1.47 billion

 

$1.51 billion

Operating margin

 

6.8%

 

7.1%

 

7.1%

 

7.4%

Net income

 

$1.04 billion

 

$1.30 billion

 

$1.23 billion

 

$1.30 billion

Diluted EPS

 

$3.88

 

$4.83

 

$4.55

 

$4.83

This year's and last year's quarterly consolidated results have been adjusted for:

Impact per diluted share

 

Fiscal 2022

 

Fiscal 2021

Mark-to-market (MTM) retirement plans accounting adjustments

 

$

0.73

 

$

0.15

Business realignment costs

 

 

0.13

 

 

?

TNT Express integration expenses

 

 

0.10

 

 

0.13

"FedEx operating income grew in our second quarter, driven by strong revenue growth and effective management of our cost and expected labor availability challenges," said Michael C. Lenz, FedEx Corp. executive vice president and chief financial officer. "While adjusted earnings per share was unchanged year over year, this year's effective tax rate was significantly higher, as last year's earnings included a $0.71 per share tax benefit."

Second quarter operating income improved due to higher revenue per shipment at all transportation segments, despite the negative effect of labor market challenges that have contributed to global supply chain disruptions. The challenging labor market affected the availability and cost of labor resulting in network inefficiencies, higher purchased transportation costs, and higher wage rates, which increased costs by an estimated $470 million year over year, primarily at FedEx Ground. The quarter's results also benefited from continued strategic management actions to improve revenue quality and favorable net fuel.

Net income includes a pre-tax, noncash MTM net loss of $260 million ($195 million, net of tax, or $0.73 per diluted share) related to the termination of a TNT Express European pension plan and a curtailment charge related to the U.S. FedEx Freight pension plan.

Last year's net income included a pre-tax, noncash loss of $52 million ($41 million, net of tax, or $0.15 per diluted share) associated with amending a TNT Express European pension plan to harmonize retirement benefits. Last year's net income also included a tax benefit of $191 million ($0.71 per diluted share) primarily related to favorable guidance issued by the Internal Revenue Service during the quarter.

FedEx Express operating income increased, driven by higher yields and FedEx International Priority volume growth, which more than offset the negative effects of continued staffing challenges and COVID-19-related air network inefficiencies. The prior year's results included a pre-tax benefit of $70 million from a reduction in aviation excise taxes provided by the Coronavirus Aid, Relief, and Economic Security Act, which expired on December 31, 2020.

FedEx Ground operating results declined primarily due to increased purchased transportation costs, higher wage rates, and network inefficiencies due to staffing shortages, which negatively affected year-over-year results by an estimated $285 million. Operating results were also negatively affected by higher expansion-related costs. These costs were partially offset by higher revenue per package, driven by service mix and pricing initiatives.

FedEx Freight second quarter operating income increased 33%, with an operating margin of 14.7%, driven by a continued focus on revenue quality and profitable growth. Revenue per shipment increased 14% and average daily shipments grew 3% during the quarter.

"Strategic investments that we have made to our networks and systems have enabled us to provide critical delivery capacity and supply chain expertise to support the needs of our customers, while also making it possible for us to capitalize on the growing e-commerce parcel market," said Raj Subramaniam, FedEx Corp. president and chief operating officer.

Share Repurchase Program

The FedEx Corp. Board of Directors has authorized a new $5 billion share repurchase program. The new program is in addition to the share repurchase program announced in 2016 authorizing the repurchase of up to 25 million shares, of which 2.3 million shares remain available for repurchase.

As part of the share repurchase programs, the company intends to enter into a $1.5 billion accelerated share repurchase program (ASR). Approximately 80% of the shares to be repurchased under the ASR will be received by FedEx at the ASR agreement's inception. The final number of shares to be repurchased under the ASR will be based on a discount to the average of the daily volume-weighted average stock prices for Rule 10b-18 eligible transactions in FedEx's common stock during the term of the ASR. Purchases under the ASR are expected to be completed prior to the end of FedEx's current fiscal year. FedEx may continue to repurchase shares in the open market from time to time subject to market and other conditions.

The company has repurchased approximately $750 million of FedEx common stock fiscal year-to-date, and ended the quarter with $6.8 billion in cash.

Outlook

FedEx is unable to forecast the year-end fiscal 2022 mark-to-market (MTM) retirement plans accounting adjustment. As a result, FedEx is unable to provide a fiscal 2022 earnings per share or effective tax rate (ETR) outlook on a GAAP basis.

FedEx is revising its earnings forecast for the fiscal year to reflect second quarter results and outlook for the second half of the fiscal year, as well as the anticipated share count change which will result from the ASR:

These forecasts assume continued growth in U.S. industrial production and global trade, a gradual improvement in labor availability, no additional COVID-19-related business restrictions, successful completion of the anticipated ASR, and current fuel price expectations. FedEx's ETR and earnings per share forecasts are based on current law and related regulations and guidance.

"The company's new share repurchase program demonstrates our expectation of strong profit and cash flow performance in FedEx's fiscal second half, and our commitment to delivering long-term value for stockholders," said Lenz. "Our focus remains on continued revenue quality improvement while managing our cost headwinds and labor availability challenges. We continue to forecast improved earnings and margins for our fiscal year."

Corporate Overview

FedEx Corp. (NYSE: FDX) provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce and business services. With annual revenue of $90 billion, the company offers integrated business solutions through operating companies competing collectively, operating collaboratively and innovating digitally under the respected FedEx brand. Consistently ranked among the world's most admired and trusted employers, FedEx inspires its more than 600,000 team members to remain focused on safety, the highest ethical and professional standards and the needs of their customers and communities. FedEx is committed to connecting people and possibilities around the world responsibly and resourcefully, with a goal to achieve carbon-neutral operations by 2040. To learn more, please visit fedex.com/about.

Additional information and operating data are contained in the company's annual report, Form 10-K, Form 10-Qs, Form 8-Ks and Statistical Books. These materials, as well as a webcast of the earnings release conference call to be held at 5:30 p.m. EST on December 16, are available on the company's website at investors.fedex.com. A replay of the conference call webcast will be posted on our website following the call.

The Investor Relations page of our website, investors.fedex.com, contains a significant amount of information about FedEx, including our Securities and Exchange Commission (SEC) filings and financial and other information for investors. The information that we post on our Investor Relations website could be deemed to be material information. We encourage investors, the media and others interested in the company to visit this website from time to time, as information is updated and new information is posted.

Certain statements in this press release may be considered forward-looking statements, such as statements relating to management's views with respect to future events and financial performance and underlying assumptions. Forward-looking statements include those preceded by, followed by or that include the words "will," "may," "could," "would," "should," "believes," "expects," "anticipates," "plans," "estimates," "targets," "projects," "intends" or similar expressions. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from historical experience or from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, economic conditions in the global markets in which we operate; our ability to meet our labor and purchased transportation needs while controlling related costs; a significant data breach or other disruption to our technology infrastructure; the continuing effect of the COVID-19 pandemic; anti-trade measures and additional changes in international trade policies and relations; our ability to successfully implement our business strategy, effectively respond to changes in market dynamics and achieve the anticipated benefits and associated cost savings of such strategies and actions, including our ability to successfully implement our FedEx Express workforce reduction plan in Europe and to continue to transform and optimize the FedEx Express international business, particularly in Europe; damage to our reputation or loss of brand equity; changes in the business or financial soundness of the U.S. Postal Service, including strategic changes to its operations to reduce its reliance on the air network of FedEx Express; changes in fuel prices or currency exchange rates; our ability to match capacity to shifting volume levels; the effect of intense competition; our ability to effectively operate, integrate, leverage and grow acquired businesses and realize the anticipated benefits of acquisitions and other strategic transactions; the future rate of e-commerce growth and our ability to successfully expand our e-commerce services portfolio; the timeline for recovery of passenger airline cargo capacity; evolving or new U.S. domestic or international laws and government regulations, policies and actions; future guidance, regulations, interpretations, challenges or judicial decisions related to our tax positions; legal challenges or changes related to service providers engaged by FedEx Ground and the drivers providing services on their behalf; an increase in self-insurance accruals and expenses; the effect of any international conflicts or terrorist activities; our ability to quickly and effectively restore operations following adverse weather or a localized disaster or disturbance in a key geography; our ability to achieve our goal of carbon-neutral operations by 2040; constraints, volatility, or disruptions in the capital markets or other factors affecting the amount and timing of share repurchases, including our ability to complete the anticipated ASR within the expected timeframe and the number of shares that will be delivered to FedEx under the ASR; and other factors which can be found in FedEx Corp.'s and its subsidiaries' press releases and FedEx Corp.'s filings with the SEC. Any forward-looking statement speaks only as of the date on which it is made. We do not undertake or assume any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

The financial section of this release is provided on the company's website at investors.fedex.com.

RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO GAAP FINANCIAL MEASURES

Second Quarter Fiscal 2022 and Fiscal 2021 Results

The company reports its financial results in accordance with accounting principles generally accepted in the United States ("GAAP" or "reported"). We have supplemented the reporting of our financial information determined in accordance with GAAP with certain non-GAAP (or "adjusted") financial measures, including our adjusted second quarter fiscal 2022 and 2021 consolidated operating income and margin, net income and diluted earnings per share, and adjusted second quarter fiscal 2022 and 2021 FedEx Express segment operating income and margin. These financial measures have been adjusted to exclude the effect of the following items (as applicable):

The MTM retirement plans accounting adjustments and costs related to business realignment activities in connection with the FedEx Express workforce reduction plan in Europe are excluded from our second quarter fiscal 2022 and fiscal 2021 consolidated and FedEx Express segment non-GAAP financial measures, as applicable, because they are unrelated to our core operating performance and/or to assist investors with assessing trends in our underlying businesses.

We have incurred and expect to incur significant expenses through fiscal 2022 in connection with our integration of TNT Express. We have adjusted our second quarter fiscal 2022 and 2021 consolidated and FedEx Express segment financial measures to exclude TNT Express integration expenses because we generally would not incur such expenses as part of our continuing operations. The integration expenses are predominantly incremental costs directly associated with the integration of TNT Express, including professional and legal fees and other operating expenses. Internal salaries and employee benefits are included only to the extent the individuals are assigned full-time to integration activities. The integration expenses do not include costs associated with our business realignment activities.

We believe these adjusted financial measures facilitate analysis and comparisons of our ongoing business operations because they exclude items that may not be indicative of, or are unrelated to, the company's and our business segments' core operating performance, and may assist investors with comparisons to prior periods and assessing trends in our underlying businesses. These adjustments are consistent with how management views our businesses. Management uses these non-GAAP financial measures in making financial, operating and planning decisions and evaluating the company's and each business segment's ongoing performance.

Our non-GAAP financial measures are intended to supplement and should be read together with, and are not an alternative or substitute for, and should not be considered superior to, our reported financial results. Accordingly, users of our financial statements should not place undue reliance on these non-GAAP financial measures. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies' non-GAAP financial measures having the same or similar names. As required by SEC rules, the tables below present a reconciliation of our presented non-GAAP financial measures to the most directly comparable GAAP measures.

Fiscal 2022 Earnings Per Share and Effective Tax Rate Forecasts

Our fiscal 2022 earnings per share (EPS) forecast is a non-GAAP financial measure because it excludes (i) the fiscal 2022 year-end MTM retirement plans accounting adjustment, (ii) estimated fiscal 2022 TNT Express integration expenses, (iii) estimated fiscal 2022 business realignment costs, and (iv) the second quarter fiscal 2022 MTM retirement plans accounting adjustments. Our fiscal 2022 effective tax rate (ETR) forecast is a non-GAAP financial measure because it excludes the effect of the fiscal 2022 year-end MTM retirement plans accounting adjustment.

We have provided these non-GAAP financial measures for the same reasons that were outlined above for historical non-GAAP measures. These items are excluded from our fiscal 2022 EPS and ETR forecasts, as applicable, for the same reasons described above for historical non-GAAP measures. The fiscal 2022 year-end MTM retirement plans accounting adjustment is excluded from our fiscal 2022 EPS and ETR forecasts because it is unrelated to our core operating performance and to assist investors with assessing trends in our underlying businesses.

We are unable to predict the amount of the year-end MTM retirement plans accounting adjustment, as it is significantly affected by changes in interest rates and the financial markets, so such adjustment is not included in our fiscal 2022 EPS and ETR forecasts. For this reason, a full reconciliation of our fiscal 2022 EPS and ETR forecasts to the most directly comparable GAAP measures is impracticable. It is reasonably possible, however, that our fiscal 2022 year-end MTM retirement plans accounting adjustment could have a material effect on our fiscal 2022 consolidated financial results and ETR.

The table included below titled "Fiscal 2022 Earnings Per Share Forecast" outlines the effects of the items that are excluded from our fiscal 2022 EPS forecast, other than the year-end MTM retirement plans accounting adjustment.

Second Quarter Fiscal 2022

FedEx Corporation

 

 

Operating

 

Income

 

Net

 

Diluted
Earnings

Dollars in millions, except EPS

 

Income

 

Margin

 

Taxes1

 

Income2

 

Per Share3

GAAP measure

 

$1,597

 

6.8%

 

$336

 

$1,044

 

$3.88

MTM retirement plans accounting adjustments4

 

?

 

?

 

65

 

195

 

0.73

Business realignment costs5

 

44

 

0.2%

 

10

 

34

 

0.13

TNT Express integration expenses6

 

34

 

0.1%

 

8

 

26

 

0.10

Non-GAAP measure

 

$1,675

 

7.1%

 

$419

 

$1,299

 

$4.83

FedEx Express Segment

 

 

Operating

Dollars in millions

 

Income

 

Margin

GAAP measure

 

$949

 

8.2%

Business realignment costs

 

44

 

0.4%

TNT Express integration expenses

 

27

 

0.2%

Non-GAAP measure

 

$1,020

 

8.8%

Second Quarter Fiscal 2021

FedEx Corporation

 

 

Operating

 

Income

 

Net

 

Diluted
Earnings

Dollars in millions, except EPS

 

Income

 

Margin3

 

Taxes1

 

Income2

 

Per Share

GAAP measure

 

$1,465

 

7.1%

 

$180

 

$1,226

 

$4.55

MTM TNT Express retirement plan accounting adjustment4

 

?

 

?

 

11

 

41

 

0.15

TNT Express integration expenses6

 

48

 

0.2%

 

12

 

36

 

0.13

Non-GAAP measure

 

$1,513

 

7.4%

 

$203

 

$1,303

 

$4.83

FedEx Express Segment

 

 

Operating

Dollars in millions

 

Income

 

Margin

GAAP measure

 

$900

 

8.7%

TNT Express integration expenses

 

43

 

0.4%

Non-GAAP measure

 

$943

 

9.1%

Fiscal 2022 Earnings Per Share Forecast

Dollars in millions, except EPS

 

Adjustments

 

 

Diluted
Earnings
Per Share

Earnings per diluted share before year-end MTM retirement plans accounting adjustment (non-GAAP)7

 

 

 

 

 

$18.25 to $19.25

 

 

 

 

 

 

 

TNT Express integration expenses

 

$

150

 

 

 

Income tax effect1

 

 

(32

)

 

 

Net of tax effect

 

$

118

 

 

0.44

 

 

 

 

 

 

 

Business realignment costs

 

$

375

 

 

 

Income tax effect1

 

 

(85

)

 

 

Net of tax effect

 

$

290

 

 

1.08

 

 

 

 

 

 

 

Second quarter fiscal 2022 MTM retirement plans accounting adjustments4

 

$

260

 

 

 

Income tax effect1

 

 

(65

)

 

 

Net of tax effect

 

$

195

 

 

0.73

 

 

 

 

 

 

 

Earnings per diluted share with adjustments7

 

 

 

 

 

$20.50 to $21.50

Notes:

 

1 ?

Income taxes are based on the company's approximate statutory tax rates applicable to each transaction.

2 ?

Effect of "total other (expense) income" on net income amount not shown.

3 ?

Does not sum to total due to rounding.

4 ?

The MTM retirement plans accounting adjustments for the second quarter of fiscal 2022 reflect a noncash loss associated with the termination of a TNT Express European pension plan and a curtailment charge related to the U.S. FedEx Freight pension plan. For the second quarter of fiscal 2021, the MTM TNT Express retirement plan accounting adjustment reflects a noncash loss associated with amending a TNT Express European pension plan to harmonize retirement benefits.

5 ?

Business realignment costs were recognized at FedEx Express.

6 ?

These expenses were recognized at FedEx Corporation and FedEx Express.

7 ?

The year-end MTM retirement plans accounting adjustment, which is impracticable to calculate at this time, is excluded.

 


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