FedEx (FDX) Tops Q2 EPS by 9c, Reports Cost-Reduction Actions

FedEx (NYSE: FDX) reported Q2 EPS of $4.03, $0.09 better than the analyst estimate of $3.94. Revenue for the quarter came in at $17.8 billion versus the consensus estimate of $17.75 billion.

Outlook

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 $12.65 to $13.40 per diluted share before year-end MTM retirement plan accounting adjustments, down from the prior forecast of $15.85 to $16.45 per diluted share;
• Earnings of $15.50 to $16.60 per diluted share before year-end MTM retirement plan accounting adjustments and excluding TNT Express integration expenses, charges related to a FedEx Ground legal matter, charges associated with the 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, down from the prior forecast of $17.20 to $17.80 per diluted share;
• ETR of 24% to 25% prior to year-end MTM retirement plan accounting adjustments; and
• Capital spending of $5.6 billion.

(**Street sees FY EPS of $17.33)

Cost-Reduction Actions

In addition to lowering variable compensation, FedEx is implementing other cost-reduction initiatives to mitigate below-plan performance. These actions include:

• A voluntary buyout program for eligible employees
• International network capacity reductions at FedEx Express
• Limited hiring in staff functions
• Reductions in discretionary spending
• Efforts to improve productivity will continue, including expanding the use of technology and capitalizing on efficiencies available through network scale.

“FedEx is in the midst of another record-setting holiday season, and we salute our more than 450,000 team members worldwide for delivering outstanding customer service,” said Frederick W. Smith, FedEx Corp. chairman and chief executive officer. “While the U.S. economy remains solid, our international business weakened during the quarter, especially in Europe. We are taking action to mitigate the impact of this trend through new cost-reduction initiatives.”

“Global trade has slowed in recent months and leading indicators point to ongoing deceleration in global trade near-term,” said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer. “These trends, coupled with the change in service mix at FedEx Express, are negatively impacting the segment’s financial results. We remain committed to actively managing costs with a heightened focus on increasing efficiency across the organization.”

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

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