FedEx Falls Short of Q3 Profit Forecasts

By Patrick Lantrip

Memphis-based FedEx Corp. enjoyed record shipping levels in its peak season for deliveries, but still fell short of third-quarter profit forecasts.

FedEx enjoyed a record holiday shipping season and beat revenue forecasts for its fiscal third quarter, but net income came in below analysts’ consensus estimate.

(Steve Cook)

In its Tuesday, March 21, earnings call, FedEx reported net income of $562 million, or $2.07 per share, for the fiscal quarter that ended Feb. 28. That was an increase from $507 million, or $1.84 per share, for the same period last year.

“FedEx delivered an outstanding peak season with our highest volumes ever and record service levels,” FedEx Corp. chairman and chief executive officer Frederick W. Smith said. “We believe strongly that our strategic investments to expand our global scope and our portfolio of services will significantly increase long-term profits.”

Smith cited deals reached with the U.S. Postal Service and Walgreens in the third quarter as examples of FedEx’s expanded portfolio of services.

However, the average consensus forecast was for profit $2.63 per share, according to Zacks Investment Research. 

Conversely, revenues for the company rose to $15 billion from $12.7 billion a year ago, topping Zacks’ forecast of $14.96 billion. The company expects full-year earnings in the range of $11.85 to $12.35 per share. 

Shares of the shipping giant rose to $197.48 on Wednesday morning, March 22, but settled lower mid-day, still up about 1.5 percent from Tuesday’s close. Shares are about 19 percent higher  over the last 12 months. 

Operating results were impacted by the negative net impact of fuel, one less operating day at FedEx Express and FedEx Ground, and network expansion at FedEx Ground, said Alan B. Graf Jr., FedEx Corp. executive vice president and chief financial officer. 

These factors were partially offset by yield growth in all of the company’s transportation segments, he added. 

“Three things you should know about fuel,” Graf said. “First, jet fuel prices increased 30 percent year over year for the quarter. Second, year over year we had a benefit from net fuel from Q3 last year and a loss from net fuel this year. Thirdly, last month we began adjusting our fuel surcharge weekly instead of monthly at both Express and Ground.”

With that change, Graf said, fuel will not impact future expenses as much as it did in the past, but the benefits won’t be felt until February 2018. 

The acquisition of TNT Express was a common point of conversation during the earnings call – a process the company maintained was proceeding smoothly. 

“The TNT acquisition, as I’m sure you know, is the largest acquisition in FedEx history,” FedEx president and chief operating officer David J. Bronczek said. “This provides exclusive benefits to FedEx, including rapidly accelerating our European and global growth around the world.” 

However, Bronczek noted that the integration will be a multi-year endeavor.

“Given all of the factors, we continue to expect the full integration to take four years to complete from the date of the acquisition, which was last May,” he said.