FedEx posts strong fiscal Q4 and full-year earnings results

Global logistics and transportation bellwether FedEx announced strong Fiscal Year and fourth quarter 2018 earnings results, which it announced late yesterday.

Earnings per share for the fiscal fourth quarter, at $5.91, were up 41% annually, with fiscal year EPS up 27% at $15.31. The quarterly EPS topped Wall Street expectations of $5.68-$5.71 per share, as well as fiscal year expectations, which were estimated to come in at $15.05-$15.13 per share.

Fiscal year revenue was up 7.9% $65.5 billion, and fiscal fourth quarter revenue was up 9.1% at $17.3 billion.

“Fiscal Year 18 was a year of opportunity and quite frankly, challenges anticipated and unexpected, and FedEx merged more competitive than ever,” said Fred Smith, FedEx Chairman and CEO on the company’s earnings call yesterday. “We're committed to increasing our margins, earnings, cash flows and returns while investing for long-term profitable success. We believe our shareowners, team members and customers will reap the benefits of this approach by creating sustainable differentiated advantages. At all my years at FedEx I've never been so optimistic and so sure of our strategy and our ability to deliver an exciting future. Having said that, we do remain concerned however about threats that manage the free flow of goods among countries, trade as a two-way street, and FedEx supports lowering trade barriers for our customers, not raising them.”

Individual FedEx unit quarterly performances: 

FedEx Express adjusted quarterly revenue, which excluded TNT Express integration expenses, was up 9% annually at $9.6, and operating income rose 10.4% to $990 million. FedEx attributed the revenue increase to higher yields and also higher freight pounds, with operating results seeing gains through higher revenue and an $85 million gain on the sale of a non-core TNT Express business and the favorable net impact of fuel and currency exchange. These results also include $110 million in TNT Express integration expenses

Total quarterly package revenue was up 8% at $7.353 billion, with U.S. package revenue up 4% at $3.313 billion and total international export package revenue up 10% at $2.840 billion.

Total average daily packages at 5.874 million were up flat, with total daily U.S. domestic packages up 1% at 2.686 million and U.S. revenue per package up 3% at $18.98. Total daily international export packages at 811,000 were up 1%, and international export revenue was up 10% at $53.85.

FedEx Ground revenue rose 12% to $4.80 billion, and operating income was up 18% at $832 million. FedEx average daily package volume growth of 6% and higher base rates drove revenue growth.

FedEx Freight, the company’s less-than-truckload segment, saw revenue increase 16% to $1.86 billion, with operating income up 34% at $175 million. Average daily shipments were up 8%, and operating results saw gains from higher revenue per shipment.

FedEx said for its full-year net results it saw a $1.6 billion benefit from the Tax Cut and Jobs Act, and it added that fiscal 2018 capital spending came in at $5.7 billion. Looking to fiscal 2019, it said revenue is expected to grow 9% annually.

And FedEx also announced on the earnings call that it has ordered 12 incremental Boeing 777F aircraft and 12 incremental Boeing 767F aircraft as the next phase of the company’s ongoing fleet modernization program. The 777Fs will be delivered between fiscal 2021 and 2025, and the 767Fs will be delivered between fiscal 2020 and 2022. FedEx said these aircraft will be used to continue to improve the efficiency and reliability of the FedEx Express aircraft fleet and allow the company to take advantage of the capital expensing benefits of the TCJA.

Addressing the upcoming Peak Season, Raj Subramaniam, Executive Vice President, Global Strategy, Marketing and Communications, said on the call that FedEx is “deep into our preparations for the upcoming peak season and we will announce more specific plans and expectations for the peak season in upcoming months.”

He added that FedEx is proud of the close collaboration with its customers and the detailed forecasting processes that it uses.

“The final results in peak 2017 were [a] 99% match to our forecast, which allowed us to very effectively prepare and position people and operational resources, and ultimately deliver outstanding service even on the busiest days of the holiday season,” he explained.

With tariffs and the possibilty of a U.S.-China trade war potentially happening, FedEx President and COO said on the call that the company believes global supply chain, especially those of high value items, are well established and will be very difficult to disrupt.

“We are hopeful that amenable solutions of course to trade policy issues will be found,” he said. “However, our global assets are at such a large-scale now that it's relatively easy for us to reposition our networks, really all around the world should any trade patterns evolve.” 

 Jerry Hempstead, president of parcel consultancy Hempstead Consulting, was bullish on FedEx’s results.

“From my point of view they were hitting on all cylinders in this most recent quarter,” he said. “It looks like global growth has erased the traffic losses at the TNT acquisition that occurred during the cyber attack last summer. The new tax bill is playing out to allow firms like FedEx (and UPS) to make some capital purchases to better position them for the future and to give them additional flexibility if the economy heats up. Apparently FedEx has already built out its ground network to be able to flex for peak this year however they were quite clear on the call that in the event of a labor disruption at their major competitor in the not too distant future, that FedEx is going to use its resources for its existing stable of customers and not be chasing transitory strike related traffic.”

On the pricing side, Hempstead said it was very evident on the investor call was that there were multiple mentions of yield improvement and balance in revenue growth in sync with margin.

“This translates to shippers as ‘less pricing flexibility’ and ‘pricing increases,’” he explained. “When the carriers get fat, the game of pricing negotiation becomes ever more difficult. Right now, FedEx is strong, their future looks pretty secure for the foreseeable future and the shareholders should be pretty happy.”