FedEx (FDX) Misses Q3 EPS by 8c, Offers Guidance

(Updated - March 19, 2019 4:05 PM EDT)

FedEx (NYSE: FDX) reported Q3 EPS of $3.03, $0.08 worse than the analyst estimate of $3.11. Revenue for the quarter came in at $17 billion versus the consensus estimate of $17.69 billion.

GUIDANCE:

FedEx sees FY2019 EPS $15.10 to $15.90, versus the consensus of $15.97.

FedEx is unable to forecast the fiscal 2019 year-end mark-to-market (MTM) retirement plan accounting adjustments. As a result, the company is unable to provide a fiscal 2019 earnings per share or effective tax rate (ETR) outlook on a GAAP basis.

FedEx is now forecasting for fiscal 2019:

• Earnings of $11.95 to $13.10 per diluted share before year-end MTM retirement plan accounting adjustments;
• Earnings of $15.10 to $15.90 per diluted share before year-end MTM retirement plan accounting adjustments and excluding TNT Express integration expenses, costs related to a FedEx Ground legal matter, costs associated with business realignment activities (including the U.S.-based voluntary employee buyout program) and the revision to the provisional benefit from the remeasurement of the net U.S. deferred tax liability included in fiscal 2018 earnings;
• ETR of 22% to 23% prior to year-end MTM retirement plan accounting adjustments; and
• Capital spending of $5.6 billion.

These forecasts assume moderate U.S. domestic economic growth and no further weakening in international economic conditions from the company’s current forecast. FedEx’s ETR and earnings per share outlooks are based on the company’s current interpretations of the TCJA and related regulations and guidance, and are subject to change based on future guidance, as well as FedEx’s ability to defend its interpretations.

Fiscal 2019 pre-tax cash costs related to business realignment activities, including the voluntary buyout program for eligible U.S.-based employees, are expected to total $450 million to $575 million and should predominantly occur in the fourth quarter of fiscal 2019. Actual costs will depend on acceptance rates. Savings from business realignment activities are expected to be $225 million to $275 million in fiscal 2020. Similar programs are likely for employees in international regions.

FedEx continues to make progress on the integration of FedEx Express and TNT Express operations. In February, FedEx Express began to integrate its intra-European shipments into the TNT Express European road network. With this development, FedEx Express customers in Europe will on average see at least one business day of transit time improvement on 40% of all European lanes, with the full implementation expected in June.

Europe accounts for a significant percentage of the combined FedEx Express and TNT Express international revenue, workforce and facilities. Integration activities in Europe are complex and require consultations with works councils and employee representatives in a number of countries. While substantial progress on integration activities is expected to occur in fiscal 2020, particularly in Europe, integration work will continue into fiscal 2021.

Integration expenses are expected to exceed $1.5 billion cumulatively through fiscal 2021 and additional costs may be incurred related to investments that will further transform and optimize the FedEx Express business. The timing and amount of integration expenses and other investments in any future period may change as plans are revised and implemented. The forecast for fiscal 2019 integration expenses is down slightly to $435 million.

“We are focused on offering innovative e-commerce solutions, increasing our revenue quality, reducing our cost to serve and completing the integration of TNT Express,” said Rajesh Subramaniam, FedEx Corp. president and chief operating officer. “We remain confident in the long-term strategic value of the FedEx Express/TNT Express combination and look forward to realizing the synergies from a single pickup-and-delivery network, single air and road network, back-office efficiencies and sustained revenue growth.”

For earnings history and earnings-related data on FedEx (FDX) click here.

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