FedEx Corp. today announced higher first quarter (June-August 2015) earnings – largely driven by a strong financial performance from FedEx Express while lowering its fiscal 2016 outlook.
It has also unveiled plans to increase express, ground and freight rates next January by an average of 4.9%.
The company reported earnings of $2.42 per diluted share for Q1 – just below the consensus estimate among analysts – compared to adjusted earnings of $2.12 per diluted share a year ago.
FedEx's share price fell 3% after the earnings release.
FedEx’s consolidated revenue grew by just over 5% on a like-for-like basis to $12.3 billion while operating income increased to $1.14 billion from $996 million. Operating margin rose to 9.3% from 8.5%.
Net income rose to $692 million from $612 million.
The rise in operating results compared to last year was due to sharply increased operating income at FedEx Express, the benefit from one additional operating day at each of the company’s transportation segments and the continued positive impacts from the company’s profit improvement program.
These benefits were partially offset by higher incentive compensation accruals, higher self-insurance reserves and operating costs at FedEx Ground, and lower-than-anticipated volume at FedEx Freight. Fuel had a slightly negative net impact to operating income. Costs related to the pending acquisition of TNT Express were immaterial during the quarter.
"FedEx Corp. is performing solidly given weaker-than-expected economic conditions, especially in manufacturing and global trade," said Frederick W. Smith, FedEx Corp. chairman, president and CEO.
"Our profit improvement program is on track and delivering impressive results, and I am very confident FedEx is well positioned to deliver value for shareowners, customers and team members in fiscal 2016 and beyond."
For the first quarter (June-August 2015) FedEx Express reported revenue of $6.59 billion, down 4% on last year as lower fuel surcharges and unfavorable currency exchange rates more than offset improved base rates.
US domestic package volume grew by 1%, driven by growth in deferred box and overnight envelope. US domestic revenue per package decreased 3% due to lower fuel surcharges, partially offset by strong base rates. FedEx International Economy volume grew 4%, while FedEx International Priority volume decreased 5%. International export revenue per package decreased 7%, as lower fuel surcharges and unfavorable currency exchange rates were partially offset by higher rates and improved package weights.
FedEx Express' operating income surged by 45% to $545 million while operating margin improved to 8.3% from 5.5%.
This was due to higher base rates, the benefit from one additional operating day, and lower international expenses due to currency exchange rates, more than offsetting higher incentive compensation accruals. Profit improvement program initiatives continued to improve revenue quality and constrain expenses.
FedEx Ground saw its first quarter revenue rise 29% to $3.83 billion due to the inclusion of GENCO results, the recording of FedEx SmartPost service revenues on a gross basis versus the previous net treatment, and higher ground revenue per package and volume.
FedEx Ground average daily volume, including FedEx SmartPost shipments, grew 4% in the first quarter due primarily to continued growth in FedEx Home Delivery. FedEx Ground yield increased 11% due to the recording of FedEx SmartPost revenues on a gross basis, higher dimensional weight charges and increased rates, partially offset by lower fuel surcharges.
Operating income was down 1% to $537 million due to increased self–insurance reserves, and higher-than-expected operating costs due in part to larger package sizes. These factors more than offset the benefits from higher revenue and one additional operating day.
Operating margin was down to 14% from 18.4% the previous year as a result of increased self–insurance reserves and higher-than-expected operating costs due in part to larger package sizes.
These factors more than offset the benefits from higher revenue and one additional operating day. Operating margin decreased primarily due to increased self-insurance reserves, the inclusion of GENCO results and the change in FedEx SmartPost revenue reporting, which collectively reduced year-over-year operating margin by four percentage points.
Q1 revenue from FedEx Freight, the US trucking business was essentially flat at $1.60 billion while operating income was down 21% on a year ago at $132 million,
Operating margin slipped to 8.2%, from 10.4%.
Less-than-truckload (LTL) average daily shipments declined 1% due to weak industry demand. LTL revenue per shipment was down 1% as higher rates from yield initiatives were more than offset by lower fuel surcharges. Operating results declined primarily due to salaries and employee benefits expense outpacing lower-than-anticipated volume.
Looking ahead, FedEx now projects adjusted earnings for fiscal 2016 to be $10.40 to $10.90 per diluted share before year-end mark-to-market pension accounting adjustments, aided by benefits from the profit improvement program. The outlook assumes moderate economic growth and does not include any operating results or costs related to TNT Express. The capital spending forecast for the fiscal year remains $4.6 billion.
"Our new fiscal 2016 outlook is modestly lower than our initial forecast due primarily to weaker LTL industry demand and higher than expected self-insurance reserves and operating costs at FedEx Ground," said Alan B. Graf, Jr., FedEx Corp. executive vice president and CFO.
"We still expect strong earnings growth this year, as we remain focused on executing our profit improvement program, leveraging e-commerce growth and enhancing our revenue quality."
Meanwhile, FedEx Express, FedEx Ground and FedEx Freight will increase shipping rates by an average of 4.9%, effective January 4, 2016
FedEx is also increasing surcharges for FedEx Ground shipments that exceed the published maximum weight or dimensional limits, and updating certain fuel surcharge tables at FedEx Express and FedEx Ground effective November 2, 2015.
