FedEx posts solid Q2 profits on record holiday volumes

The Memphis, Tenn.-based integrator reported net income of $691 million on $12.5 billion in revenues in the second quarter of fiscal year 2016 ended Nov. 30, year-over-year increases of 4.2 percent and 4.8 percent, respectively.    FedEx Corp. posted a net income of $691 million for the second quarter of fiscal year 2016, which ended Nov. 30, an increase of 4.2 percent from the second quarter of fiscal 2015, according to the company’s most recent financial statements.
   The Memphis, Tenn.-based integrator beat consensus earnings per share estimates by $0.06 per share, reporting adjusted (non-GAAP) EPS of $2.58 per share, up from $2.16 per share in Q2 2015.
   FedEx noted adjusted earnings and EPS included related to the settlement of independent contractor litigation involving FedEx Ground ($0.09 per diluted share) and the company’s pending acquisition of TNT Express ($0.04 per diluted share). FedEx formalized its $4.8 billion takeover bid for the Netherlands-based global express carrier in August.
   Revenues for the quarter grew 4.8 percent year-over-year to $12.5 billion, also beating street expectations by around $50 million.
   FedEx reported operating income of $1.14 billion in the second quarter, a 4.6 percent increase from the same fiscal 2015 period. The company’s operating margin remained flat at 9.1 percent compared to last year, but on an adjusted basis rose from 8.6 percent to 9.6 percent for the quarter.
   The company attributed the increase in operating results primarily to higher base rates and profit improvement initiatives, offset slightly by lower-than-anticipated volumes at FedEx Freight and a “modest” negative impact from lower fuel surcharges.
   “FedEx Corp. posted solid earnings despite continued weakness in industrial production and global trade, and we are making impressive progress toward our goals to increase margins, earnings per share, cash flows, and returns on invested capital,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer. “A record number of holiday shipments – fueled by the steady rise of e-commerce – are flowing through the FedEx global networks, and we greatly appreciate the dedication of our 340,000 team members around the world who are delivering outstanding service to our customers.”
   Stock in FedEx jumped 2.84 percent yesterday on the news, closing at $148.83 per share. Shares in the company continued to rise on Thursday, going as high as $156.85 in early morning trading before settling in around $153.30 by 11 a.m., up an additional 3 percent from Wednesday’s closing price.
   By segment, FedEx Express posted a 6 percent year-over-year drop in revenues to $6.59 billion for the second quarter of fiscal 2016. Operating income, on the other hand, grew 26 percent to $622 million compared to the previous year, thanks to a year-over-year improvement in operating margin from 7 percent to 9.4 percent. 
   FedEx Ground reported operating income of $526 million on $4.05 billion in revenues for the quarter, increases of 13 percent and 32 percent, respectively, from the same fiscal 2015 period. The company attributed the sharp increase in revenues to the inclusion of results from GENCO, a third-party logistics provider FedEx paid $1.4 billion to acquire in January; the recording of FedEx SmartPost service revenues on a gross basis versus the previous net treatment; a 9 percent jump average daily volumes driven primarily by growth in e-commerce.
   Operating income at FedEx Freight stood $101 million, down 10 percent from last year, and its revenues were down 2 percent to $1.55 billion in the second quarter.
   Looking ahead, FedEx reaffirmed its adjusted full fiscal 2016 EPS projection of $10.40 to $10.90 per diluted share, assuming moderate economic growth and excluding any independent contractor legal settlements and any costs or results related to the acquisition of TNT Express. The company also reiterated its expected capital expenditure of $4.6 billion for the fiscal 2016 year.
   “We expect our solid earnings growth to continue in the second half of our fiscal year despite weakness in industrial production,” said CFO Alan B. Graf, Jr. “Our improved financial results are being driven by better revenue quality, e-commerce growth and the successful ongoing execution of our profit improvement initiatives.”