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VOL. 132 | NO. 188 | Thursday, September 21, 2017

FedEx Takes Profit Hit From Cyberattack in Q1

By Patrick Lantrip

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FedEx’s earnings per share for the first quarter were down year over year, as the Memphis-based shipping company continues to feel the effects of a June 27 cyberattack on subsidiary TNT Express that ended up costing $300 million.

FedEx reported earnings of $2.19 per diluted share during its Sept. 19 Q1 earnings call for the first quarter that ended Aug. 31, down from $2.65 per diluted share in the first quarter of fiscal year 2017.

“The first quarter, due to the TNT Express cyberattack and Hurricane Harvey, posed significant challenges to our operation in the first quarter,” Fred Smith, FedEx Corp. chairman and chief executive officer, said during the call. “I strongly believe that FedEx will emerge from the cyberattack as an even stronger, more resourceful company, and I would like to thank the thousands of FedEx team members who worked tirelessly to remediate the TNT systems problems.”

FedEx Corp. said Tuesday, Sept. 19, a cyberattack at its TNT Express operating unit resulted in a profit reduction of 79 cents per share in the first quarter. (Daily News File/Andrew J. Breig)

Smith also reaffirmed FedEx’s goal to improve operating income at the FedEx Express segment by $1.2 billion to $1.5 billion in fiscal 2020 versus fiscal 2017.

While not as drastic as the cyberattack, the effects of Hurricane Irma were also costly and reduced the company’s earnings by 2 cents per diluted share.

For the first quarter, FedEx reported total revenues of $15.3 billion, which is up from $14.7 billion a year ago. When combined with operating income of $1.12 billion, the company finished the first quarter with a 7.3 percent operating margin, which is down from 8.6 percent during the first quarter of FY2017.

“Financial results during the quarter benefited from higher base rates at each of our transportation segments, which was more than offset by reduced revenue and increased expenses resulting from the TNT Express cyberattack,” Alan B. Graf Jr., FedEx executive vice president and CFO, said.

The effects of the June NotPetya cyberattack, which cost 79 cents per diluted share, are still being felt months after the initial disruption.

“Most TNT Express services resumed during the quarter and substantially all TNT Express critical operational systems have been restored. However, TNT Express volume, revenue and profit still remain below previous levels,” a report that was released in conjunction with the earnings call read in part.

FedEx acquired Netherlands-based TNT Express, an international package delivery and freight transportation company, in 2016 for $4.8 billion and is in the process of integrating TNT with FedEx Express.

In July, the company reported to the U.S. Securities and Exchange Commission that the virus entered the TNT system through the company’s Ukrainian operations, before spreading to the whole system.

“It is taking longer to restore our international business due to the complexity of the clearance systems and business processes,” Graf said. “As we look ahead to the remainder of FY18, we expect to experience ongoing, but diminishing financial impacts of the cyberattack in the form of lower revenues and higher investments to further improve and strengthen our IT infrastructure.”

The company said it believes the cyberattack was the result of a nation-state targeting Ukraine and the companies that do business there, and that it is widely believed the attack came from “weaponized cyber tools” stolen from the U.S. government.

FedEx lowered its expected fiscal year earnings to between $11.05 and $11.85 per share, down from previous projections for earnings between $12 and $12.80 per share.

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