FedEx Corp. (FDX, Financial) reported better-than-expected fourth-quarter and full-year earnings.
The company’s loss narrowed to 26 cents per share in the fourth quarter compared with a loss of $3.16 per share a year ago. A pretax charge on the company’s pension liability and acquisition-related items had an adverse impact on the profits. However, the company’s adjusted earnings per share increased 24% to $3.30 for the quarter against last year, beating Wall Street's estimate of $3.28 per share. Let’s take a closer look at the quarter and full-year results to see where FedEx is headed.
The quarter in a snapshot
FedEx’s revenue for the fourth quarter came in at $13.0 billion which compares with $12.1 billion reported a year ago. The delivery giant also topped the average analyst revenue estimate of $12.8 billion. This growth is attributable to the strong performance of the ground segment.
The loss for the quarter stood at 26 cents per share against a year-ago loss of $895 million, translating to $3.16 a share. The numbers were dragged down on account of pension liability adjustments and costs borne on the acquisition of TNT Express. However, the Memphis, Tennessee-based company registered adjusted net income of $3.30 per share against $2.66 per share a year earlier.
FedEx’s quarterly numbers were driven by higher income from FedEx Express, increase in ecommerce sales, two additional days of operations and the drop in fuel prices. But this was to some degree compensated by the lower-than-expected results of the freight section. Besides, the company also suffered from adverse currency translation during the quarter.
FedEx’s revenue for the full year came in at $50.4 billion against last year’s $47.5 billion. The company also gained operational efficiency that boosted its adjusted EPS for the year by 21% to $10.80. The company generated profit of $1.82 billion for the full year, which translates to $6.51 a share.
What to expect going forward
FedEx has given guidance for fiscal 2017 and expects its adjusted earnings per share to range between $11.75 and $12.25, a growth of 9% to 13% over fiscal 2016. It should be noted that the company’s outlook for 2017 does not include the integration benefit that is expected to come from its recent acquisition of TNT Express.
FedEx acquired TNT Express at the end of the quarter. The acquisition is a significant step taken by the company to solidify its positioning in various international markets, Europe in particular. Since the purchase of the Netherlands-based courier delivery service company concluded so late in the quarter, it doesn’t look like the synergies of combination have been factored in the outlook. As such, FedEx’s results may show a stark contrast to its own outlook.
The company’s key challenge for fiscal 2017 would be to facilitate a seamless integration of TNT Express’ processes into its own delivery network to begin reaping the benefits. Besides, FedEx plans to increase its capital spending to $5.1 billion in fiscal 2017 compared with $4.8 billion spent in the last fiscal. The rise in capex along with heavy investments to integrate TNT’s process may bear a negative impact on FedEx’ cash flows in the current fiscal. However, FedEx’s revenue and profit are expected to get a boost in years to follow once the combination process settles.
Disclosure: I have no positions in any stocks mentioned in this article.
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