FedEx Reports Higher Third Quarter Diluted EPS of $3.51 and Adjusted Diluted EPS of $3.86
FedEx Corp. reports a 19% increase in operating income year over year, with a 16% rise on an adjusted basis. The company reduces its capital spending forecast and plans a $500 million share repurchase in the fourth quarter. The Board of Directors also authorizes a new $5 billion share repurchase program. FedEx narrows its full-year earnings outlook range, showcasing improved profitability despite a challenging demand environment.
Positive
Operating income up 19% year over year, 16% on an adjusted basis
Reduction in capital spending forecast
Plans $500 million share repurchase in the fourth quarter
Board authorizes new $5 billion share repurchase program
Narrows full-year earnings outlook range
Improved profitability despite lower revenue
FedEx Express and FedEx Ground operating results improved
Completed $1 billion accelerated share repurchase transaction
Expects to repurchase additional $500 million of common stock in Q4
Authorized new $5 billion share repurchase program
Cash on-hand as of February 29, 2024, was $5.6 billion
Reviewing FedEx Corp.'s recent financial report highlights several areas of interest for shareholders and potential investors. The 19% year-over-year increase in operating income and the 16% adjusted basis increase signal effective cost management and operational efficiency, likely reflecting positively on stock valuation. The reduction in capital spending forecast, from $5.7 billion to $5.4 billion, suggests a strategic reallocation of resources, which could improve free cash flow and potentially benefit share price.
The announcement of an additional $500 million share repurchase in the fourth quarter, along with a new $5 billion share repurchase program , is a strong indication of management's confidence in the company's financial health and its commitment to returning value to shareholders. Historically, such buybacks can be seen as a positive signal to the market, often resulting in a bullish outlook for the stock as it indicates a surplus of cash and a potentially undervalued share price.
However, the narrowed full-year earnings outlook range requires careful consideration. While it may reflect management's confidence in meeting targets, it also reduces the margin for error. Investors should monitor subsequent performance closely, especially given the uncertain economic environment and potential volatility in fuel prices.
The DRIVE program's impact on FedEx's operational efficiency is noteworthy. By focusing on cost reduction and revenue quality, FedEx appears to be successfully navigating a challenging demand environment. This strategic initiative could be a differentiator in the competitive logistics sector, potentially increasing FedEx's market share and strengthening its position against rivals.
Additionally, the low-single-digit percentage decline in forecasted revenue year over year should be contextualized within the broader industry trends, such as e-commerce growth and global trade patterns. Investors would benefit from understanding how FedEx's digital innovations and network optimization align with these trends. A company's ability to modernize and adapt to changing market conditions is often a critical factor in long-term success and stock performance.
The permanent cost reductions from the DRIVE transformation program, estimated at $1.8 billion, could significantly improve the company's competitive edge by allowing it to offer more aggressive pricing or invest in new growth areas. This is particularly important as the logistics industry faces increasing pressure from new entrants and changing consumer expectations.
From an economic perspective, FedEx's financial results and forecasts provide insights into the broader economic landscape. The revenue decline projection may reflect subdued global economic activity and trade headwinds, which could have implications for other sectors reliant on shipping and transportation services. The company's performance is often seen as a bellwether for global economic health, given its international operations and role in supply chains.
The capital spending reduction and focus on efficiency improvements through fleet and facility modernization are indicative of a strategic shift towards cost control in an uncertain economic environment. This aligns with broader economic trends where businesses are preparing for potential downturns by streamlining operations and preserving capital.
FedEx's commitment to achieving carbon-neutral operations by 2040 is also significant, as it reflects the growing importance of sustainability in corporate strategy. This goal may influence investor sentiment, particularly among those prioritizing environmental, social and governance (ESG) criteria and could impact the company's long-term financial performance by preemptively addressing regulatory risks and consumer demand shifts towards greener options.
03/21/2024 - 04:08 PM
Operating Income Up 19% Year Over Year; Up 16% on an Adjusted Basis
Reduces Capital Spending Forecast
Plans Additional $500 Million Board of Directors Authorizes New $5 Billion Narrows Full-Year Earnings Outlook Range
MEMPHIS, Tenn. --(BUSINESS WIRE)--
FedEx Corp. (NYSE: FDX) today reported the following consolidated results for the third quarter ended February 29 (adjusted measures exclude the items listed below):
Fiscal 2024
Fiscal 2023
As Reported
Adjusted
As Reported
Adjusted
Revenue
$21.7 billion
$21.7 billion
$22.2 billion
$22.2 billion
Operating income
$1.24 billion
$1.36 billion
$1.04 billion
$1.17 billion
Operating margin
5.7%
6.2%
4.7%
5.3%
Net income
$879 million
$966 million
$771 million
$865 million
Diluted EPS
$3.51
$3.86
$3.05
$3.41
This year’s and last year’s quarterly consolidated results have been adjusted for:
Impact per diluted share
Fiscal 2024
Fiscal 2023
Business optimization costs
$0.35
$0.36
Business realignment costs
—
0.01
Third quarter income and margin improved despite lower revenue, primarily due to execution of the company's DRIVE program and the continued focus on revenue quality.
“FedEx delivered another quarter of improved profitability in what remains a difficult demand environment, reflecting outstanding service and continued benefits from DRIVE,” said Raj Subramaniam, FedEx Corp. president and chief executive officer. “We are making meaningful progress on our transformation, while strengthening our value proposition and improving the customer experience. I've never been more confident in our path ahead as we build a more flexible, efficient, and intelligent network.”
FedEx Express operating results improved due to lower structural costs resulting from DRIVE initiatives and the benefit from one additional operating day, partially offset by lower revenue.
FedEx Ground operating results increased due to lower structural costs resulting from DRIVE initiatives, higher base yield, and reduced self-insurance costs. Cost per package was flat, as lower line-haul expense and improved dock productivity offset higher first- and last-mile costs.
FedEx Freight operating results decreased due to lower fuel surcharges, reduced weight per shipment and lower shipments, partially offset by higher base yield and the benefit from one additional operating day. Last year's third quarter operating income included a $30 million
Share Repurchase Program
The company completed a $1 billion $0.09
FedEx expects to repurchase an additional $500 million $2.5 billion
The FedEx Corp. Board of Directors has also authorized a new $5 billion $0.6 billion
Cash on-hand as of February 29, 2024 was $5.6 billion
“DRIVE is having a real impact, supporting both operating income growth and margin expansion,” said John Dietrich, FedEx Corp. executive vice president and chief financial officer. “As we look ahead, we’re focused on continuing to deliver on DRIVE and our commitments to support long-term shareholder returns.”
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;
Earnings per diluted share of $15.65 $16.65 $15.35 $16.85
Earnings per diluted share of $17.25 $18.25 $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 $5.4 billion $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 $88 billion fedex.com/about .
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. EDT on March 21, 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 within the meaning of the Private Securities Litigation Reform Act of 1995, 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 our relationship with the U.S. Postal Service or changes in its business or financial soundness, including strategic changes to its operations to reduce its reliance on the air network of FedEx Express; our ability to meet our labor and purchased transportation needs while controlling related costs; a significant data breach or other disruption to our technology infrastructure; anti-trade measures and additional changes in international trade policies and relations; the effects of any international conflicts or terrorist activities; the impacts of a widespread outbreak of an illness or any other communicable disease or public health crises; changes in fuel prices or currency exchange rates; our ability to match capacity to shifting volume levels; the effect of intense competition; an increase in self-insurance accruals and expenses; failure to receive or collect expected insurance coverage; our ability to effectively operate, integrate, leverage, and grow acquired businesses and realize the anticipated benefits of acquisitions and other strategic transactions; noncash impairment charges related to our goodwill and certain deferred tax assets; the future rate of e-commerce growth and levels of inventory restocking; evolving or new U.S. domestic or international laws and government regulations, policies, and actions; future guidance, regulations, interpretations, challenges, or judicial decisions related to our tax positions; legal challenges or changes related to service providers engaged by FedEx Ground and the drivers employed by them and the coverage of U.S. employees at FedEx Express under the Railway Labor Act of 1926, as amended; our ability to quickly and effectively restore operations following adverse weather or a localized disaster or disturbance in a key geography; any liability resulting from and the costs of defending against litigation; our ability to achieve or demonstrate progress on our goal of carbon-neutral operations by 2040; and other factors which can be found in FedEx Corp.’s and its subsidiaries’ press releases and FedEx Corp.’s filings with the SEC. Any forward-looking statement speaks only as of the date on which it is made. We do not undertake or assume any obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.
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
Third Quarter Fiscal 2024 and Fiscal 2023 Results
The company reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP” or “reported”). We have supplemented the reporting of our financial information determined in accordance with GAAP with certain non-GAAP (or “adjusted”) financial measures, including our adjusted third quarter fiscal 2024 and 2023 consolidated operating income and margin, net income and diluted earnings per share, adjusted third quarter fiscal 2024 FedEx Express and FedEx Ground segment operating income and margin and adjusted third quarter fiscal 2023 FedEx Express segment operating income and margin. These financial measures have been adjusted to exclude the effects of the following items (as applicable):
Business optimization costs incurred in fiscal 2024 and 2023; and
Business realignment costs incurred in fiscal 2023.
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 third 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 Express, and FedEx Ground. Additionally, we incurred costs associated with our business realignment activities in connection with the FedEx Express workforce reduction plan in Europe in the third quarter of fiscal 2023. These costs were related to certain employee severance arrangements. Costs related to business optimization initiatives and business realignment activities are excluded from our third 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.
Third Quarter Fiscal 2024
FedEx Corporation
Operating
Income
Net
Diluted
Dollars in millions, except EPS
Income
Margin
Taxes1
Income2
Per Share
GAAP measure
$1,243
5.7%
$304
$879
$3.51
Business optimization costs3
114
0.5%
27
87
0.35
Non-GAAP measure
$1,357
6.2%
$331
$966
$3.86
FedEx Express Segment
Operating
Dollars in millions
Income
Margin
GAAP measure
$233
2.3%
Business optimization costs
23
0.2%
Non-GAAP measure
$256
2.5%
FedEx Ground Segment
Operating
Dollars in millions
Income
Margin
GAAP measure
$942
10.8%
Business optimization costs
22
0.3%
Non-GAAP measure
$964
11.1%
Third Quarter Fiscal 2023
FedEx Corporation
Operating
Income
Net
Diluted
Dollars in millions, except EPS
Income
Margin4
Taxes1
Income2
Per Share4
GAAP measure
$1,042
4.7%
$251
$771
$3.05
Business optimization costs5
120
0.5%
28
92
0.36
Business realignment costs6
3
—
1
2
0.01
Non-GAAP measure
$1,165
5.3%
$280
$865
$3.41
FedEx Express Segment
Operating
Dollars in millions
Income
Margin
GAAP measure
$119
1.2%
Business realignment costs
3
—
Non-GAAP measure
$122
1.2%
Fiscal 2024 Earnings Per Share Forecast
Dollars in millions, except EPS
Adjustments
Diluted
Earnings per diluted share before
7
$15.65 $16.65
Business optimization costs
$530
Income tax effect1
(125)
Net of tax effect
$405
1.60
Earnings per diluted share with adjustments
7
$17.25 $18.25
Notes:
1 – Income taxes are based on the company’s approximate statutory tax rates applicable to each transaction.
View source version on businesswire.com: https://www.businesswire.com/news/home/20240321300208/en/
Media Contact: Caitlin Adams Maier 901-434-8100
Source: FedEx Corp.
FedEx's operating income increased by 19% year over year, with a 16% rise on an adjusted basis.
FedEx reduced its capital spending forecast.
FedEx plans to repurchase an additional $500 million of common stock in the fourth quarter.
The Board of Directors authorized a new $5 billion share repurchase program.
FedEx narrowed its full-year earnings outlook range.
