FedEx Reports Higher Second Quarter Diluted EPS of $3.55 and Adjusted Diluted EPS of $3.99
- Operating income and margin improved despite lower revenue
- FedEx Ground operating income increased due to yield improvement and cost reductions
- FedEx Freight operating income increased despite a decline in revenue
- The company completed a $500 million accelerated share repurchase (ASR) transaction during the quarter
- FedEx expects permanent cost reductions from the DRIVE transformation program of $1.8 billion
- A low-single-digit percentage decline in revenue year over year
- FedEx is unable to forecast the fiscal 2024 mark-to-market (MTM) retirement plans accounting adjustments, which could have a material effect on fiscal 2024 consolidated financial results and effective tax rate (ETR)
The recent financial performance update from FedEx Corp. indicates a nuanced picture of the company's fiscal health. The reported increase in operating income and margin expansion, despite a decline in revenue, suggests effective cost management and operational efficiency improvements. The emphasis on their DRIVE program indicates a strategic pivot towards optimizing the business model, which is critical in the context of a challenging demand environment.
From an investment perspective, the share repurchase program, including the completed $500 million accelerated share repurchase and the planned $1.0 billion repurchase, reflects a management confident in the company's intrinsic value and a commitment to returning value to shareholders. The impact of these repurchases on earnings per share (EPS) indicates a positive influence on shareholder value.
However, investors should consider the forecasted low-single-digit percentage decline in revenue year over year, which signals caution regarding top-line growth. The inability to provide GAAP earnings per share or effective tax rate outlook due to uncertainties in retirement plans accounting adjustments adds a layer of risk to the fiscal outlook. The capital spending focus on efficiency improvements is a positive sign for long-term operational competitiveness, but it also requires careful monitoring of the balance between investment and return on investment.
FedEx's operational results are particularly noteworthy within the broader logistics and transportation industry, which has faced significant headwinds from fluctuating fuel costs, global trade tensions and an uncertain economic climate. The company's reported yield improvements and cost reductions, especially in the Ground and Freight segments, demonstrate a successful adaptation to these industry challenges.
The strategic investments in network optimization and automation are aligned with industry trends towards digital transformation and increased efficiency. FedEx's performance and strategic direction could serve as an industry benchmark for how legacy logistics companies can leverage technology and operational efficiency to maintain competitiveness.
It is also important to highlight FedEx's environmental commitment to achieving carbon-neutral operations by 2040, a factor increasingly important to socially responsible investors and potentially impacting brand reputation and customer loyalty in the long term.
The broader economic implications of FedEx's update are significant, given the company's role as a bellwether for global trade and economic activity. The reported decline in revenue and volume, alongside reduced demand surcharges, may be indicative of softer economic conditions and reduced consumer spending.
The company's cost management strategies and the resulting improvement in profitability despite these conditions suggest resilience and an ability to adapt to economic cycles. This performance could be a microcosm of how companies in the logistics sector can navigate economic downturns through efficiency and cost control.
Furthermore, the capital expenditure plans, while substantial, are a sign of FedEx's confidence in its long-term strategy and its commitment to maintaining a competitive edge through modernization and efficiency gains. The economic multiplier effect of such investments could contribute positively to the industry and economy at large, depending on the successful implementation and realization of projected efficiency gains.
Updates Full-Year Fiscal 2024 Earnings Outlook and Confirms Full-Year Fiscal 2024 Adjusted Earnings Outlook
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This year’s and last year’s quarterly consolidated results have been adjusted for:
Impact per diluted share |
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Business optimization costs |
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Second quarter income and margin improved despite lower revenue, with consolidated operating income up
“FedEx has delivered an unprecedented two consecutive quarters of operating income growth and margin expansion even with lower revenue, clear evidence of the progress we are making on our transformation as we navigate an uncertain demand environment,” said Raj Subramaniam, FedEx Corp. president and chief executive officer. “We are moving with speed to make our network more efficient while delivering outstanding service to our customers through the peak season with the fastest Ground network in the industry. I am confident in our strategy as we make our global network more flexible, efficient, and intelligent.”
FedEx Ground operating income increased primarily due to yield improvement, cost reductions, and higher volumes. Cost per package declined
FedEx Freight operating income increased despite a decline in revenue. The profit increase was driven by higher yield and increased efficiency, partially offset by lower shipments.
FedEx Express operating income declined due to lower revenue, partially offset by reduced operating expenses. The revenue decrease was driven by volume declines, lower fuel surcharges, reduced demand surcharges, and a mix shift toward lower-yielding services.
The company completed a
“With demand continuing to pressure the top-line, we are pleased with our ability to deliver stronger operating leverage and improved profitability, enabling us to maintain our fiscal year adjusted earnings outlook,” said John Dietrich, FedEx Corp. executive vice president and chief financial officer. “These results are a testament to DRIVE initiatives taking hold, where we are focused on improving margins and driving long-term returns for our stockholders.”
Outlook
FedEx is unable to forecast the fiscal 2024 mark-to-market (MTM) retirement plans accounting adjustments. As a result, FedEx is unable to provide a fiscal 2024 earnings per share or effective tax rate (ETR) outlook on a GAAP basis and is relying on the exemption provided by the Securities and Exchange Commission. It is reasonably possible that the fiscal 2024 MTM retirement plans accounting adjustments could have a material effect on fiscal 2024 consolidated financial results and ETR.
For fiscal 2024, FedEx expects:
- A low-single-digit percentage decline in revenue year over year, compared to the prior forecast of approximately flat revenue growth;
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Earnings per diluted share of
$15.35 $16.85 $15.10 $16.60 -
Earnings per diluted share of
$17.00 $18.50 -
Permanent cost reductions from the DRIVE transformation program of
$1.8 billion -
ETR of approximately
25% prior to the MTM retirement plans accounting adjustments; and -
Capital spending of
$5.7 billion
These forecasts assume the company's current economic forecast and fuel price expectations, successful completion of the planned stock repurchases, and no additional adverse geopolitical developments. FedEx’s ETR and earnings per share forecasts are based on current law and related regulations and guidance.
Corporate Overview
FedEx Corp. (NYSE: FDX) provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce and business services. With annual revenue of
Additional information and operating data are contained in the company’s annual report, Form 10-K, Form 10-Qs, Form 8-Ks and Statistical Books. These materials, as well as a webcast of the earnings release conference call to be held at 5:30 p.m. EST on December 19, are available on the company’s website at investors.fedex.com. A replay of the conference call webcast will be posted on our website following the call.
The Investor Relations page of our website, investors.fedex.com, contains a significant amount of information about FedEx, including our Securities and Exchange Commission (SEC) filings and financial and other information for investors. The information that we post on our Investor Relations website could be deemed to be material information. We encourage investors, the media and others interested in the company to visit this website from time to time, as information is updated and new information is posted.
Certain statements in this press release may be considered forward-looking statements, such as statements regarding expected cost savings, the planned consolidation of operating companies, future financial targets, business strategies, management’s views with respect to future events and financial performance, and the assumptions underlying such expected cost savings, targets, strategies, and statements. Forward-looking statements include those preceded by, followed by or that include the words “will,” “may,” “could,” “would,” “should,” “believes,” “expects,” “forecasts,” “anticipates,” “plans,” “estimates,” “targets,” “projects,” “intends” or similar expressions. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from historical experience or from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, economic conditions in the global markets in which we operate; our ability to successfully implement our business strategy and global transformation program and consolidate our operating companies into one organization, effectively respond to changes in market dynamics, and achieve the anticipated benefits of such strategies and actions while managing related risks; our ability to achieve our cost reduction initiatives and financial performance goals; the timing and amount of costs related to our global transformation program and other ongoing initiatives; damage to our reputation or loss of brand equity; changes in the business or financial soundness of the
The financial section of this release is provided on the company's website at investors.fedex.com.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
TO GAAP FINANCIAL MEASURES
Second Quarter Fiscal 2024 and Fiscal 2023 Results
The company reports its financial results in accordance with accounting principles generally accepted in
In fiscal 2023, FedEx announced DRIVE, a comprehensive program to improve the company’s long-term profitability. This program includes a business optimization plan to drive efficiency among our transportation segments, lower our overhead and support costs, and transform our digital capabilities. We incurred costs associated with our business optimization initiatives in the second quarter of fiscal 2024 and fiscal 2023. These costs were primarily related to professional services and severance. Business optimization costs are included in Corporate, other, and eliminations, FedEx Ground, and FedEx Express. Costs related to business optimization initiatives are excluded from our second quarter fiscal 2024 and 2023 consolidated and FedEx Express and FedEx Ground segment non-GAAP financial measures, as applicable, because they are unrelated to our core operating performance and to assist investors with assessing trends in our underlying businesses.
We believe these adjusted financial measures facilitate analysis and comparisons of our ongoing business operations because they exclude items that may not be indicative of, or are unrelated to, the company’s and our business segments’ core operating performance, and may assist investors with comparisons to prior periods and assessing trends in our underlying businesses. These adjustments are consistent with how management views our businesses. Management uses these non-GAAP financial measures in making financial, operating and planning decisions and evaluating the company’s and each business segment’s ongoing performance.
Our non-GAAP financial measures are intended to supplement and should be read together with, and are not an alternative or substitute for, and should not be considered superior to, our reported financial results. Accordingly, users of our financial statements should not place undue reliance on these non-GAAP financial measures. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures having the same or similar names. As required by SEC rules, the tables below present a reconciliation of our presented non-GAAP financial measures to the most directly comparable GAAP measures.
Fiscal 2024 Earnings Per Share and Effective Tax Rate Forecasts
Our fiscal 2024 earnings per share (EPS) forecast is a non-GAAP financial measure because it excludes fiscal 2024 mark-to-market (MTM) retirement plans accounting adjustments and estimated costs related to business optimization initiatives in fiscal 2024. Our fiscal 2024 effective tax rate (ETR) forecast is a non-GAAP financial measure because it excludes the effect of fiscal 2024 MTM retirement plans accounting adjustments.
We have provided these non-GAAP financial measures for the same reasons that were outlined above for historical non-GAAP measures. Costs related to business optimization initiatives are excluded from our fiscal 2024 EPS forecast for the same reasons described above for historical non-GAAP measures.
We are unable to predict the amount of the MTM retirement plans accounting adjustments, as they are significantly affected by changes in interest rates and the financial markets, so such adjustments are not included in our fiscal 2024 EPS and ETR forecasts. For this reason, a full reconciliation of our fiscal 2024 EPS and ETR forecasts to the most directly comparable GAAP measures is impracticable. It is reasonably possible, however, that our fiscal 2024 MTM retirement plans accounting adjustments could have a material effect on our fiscal 2024 consolidated financial results and ETR.
The table included below titled “Fiscal 2024 Earnings Per Share Forecast” outlines the effects of the items that are excluded from our fiscal 2024 EPS forecast, other than the MTM retirement plans accounting adjustments.
Second Quarter Fiscal 2024
FedEx Corporation
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Operating |
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Income |
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Net |
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Diluted
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Dollars in millions, except EPS |
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Income |
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Margin1 |
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Taxes2 |
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Income3 |
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Per Share |
GAAP measure |
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Business optimization costs4 |
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145 |
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35 |
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110 |
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0.44 |
Non-GAAP measure |
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FedEx Express Segment
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Operating |
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Dollars in millions |
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Income |
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Margin |
GAAP measure |
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Business optimization costs |
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41 |
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Non-GAAP measure |
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FedEx Ground Segment
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Operating |
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Dollars in millions |
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Income |
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Margin |
GAAP measure |
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Business optimization costs |
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36 |
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Non-GAAP measure |
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Second Quarter Fiscal 2023
FedEx Corporation
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Operating |
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Income |
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Net |
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Diluted
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Dollars in millions, except EPS |
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Income |
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Margin1 |
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Taxes2 |
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Income3 |
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Per Share |
GAAP measure |
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Business optimization costs5 |
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36 |
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9 |
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27 |
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0.11 |
Non-GAAP measure |
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FedEx Express Segment
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Operating |
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Dollars in millions |
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Income |
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Margin |
GAAP measure |
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Business optimization costs |
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11 |
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Non-GAAP measure |
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Fiscal 2024 Earnings Per Share Forecast
Dollars in millions, except EPS |
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Adjustments |
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Diluted
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Earnings per diluted share before
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Business optimization costs |
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Income tax effect2 |
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(130) |
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Net of tax effect |
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1.65 |
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Earnings per diluted share with adjustments
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Notes:
1 – Does not sum to total due to rounding.
2 – Income taxes are based on the company’s approximate statutory tax rates applicable to each transaction.
3 – Effect of “total other (expense) income” on net income amount not shown.
4 – These expenses were recognized at Corporate, other, and eliminations, as well as FedEx Express and FedEx Ground.
5 – These expenses were recognized at FedEx Corporate and FedEx Express.
6 – The MTM retirement plans accounting adjustments, which are impracticable to calculate at this time, are excluded.
View source version on businesswire.com: https://www.businesswire.com/news/home/20231219423515/en/
Media Contact: Caitlin Adams Maier 901-434-8100
Investor Contact: Stephen Hughes 901-818-7471
Source: FedEx Corp.
