FedEx settles independent driver lawsuit

FedEx Ground reached a tentative agreement with plaintiffs to settle the case for $228 million.    FedEx Corporation’s trucking segment, FedEx Ground, has reached a tentative $228 million settlement agreement with plaintiffs in a lawsuit over drivers in California being paid as independent contractors.
   The settlement agreement is still subject to approval by the United States District Court for the Northern District of California. Christine P. Richards, executive vice president and general counsel of FedEx Corp., said in a statement the settlement “resolves claims dating back to 2000 that concern a model FedEx Ground no longer operates.”
   As a result of the agreement in principle, FedEx has reported a charge of $197 million ($133 million net of tax, or $0.47 per share in the fourth quarter and $0.46 per share for fiscal 2015) to increase the reserve for this matter to the amount of the settlement.
   Investment advisor William Blair said in a recent equity research report that due to the fact FedEx no longer operates the independent contractor model, “We do not believe there is a significant risk of this settlement spilling over into other states; however, litigation is admittedly not our expertise and can be difficult to predict.”
   In addition, the company announced it has adopted mark-to-market pension accounting for its defined benefit pension and other post-retirement plans, and that it has permanently retired 15 aircraft and 21 related engines as the company continues to rationalize capacity and modernize its fleet.
   “These items will reduce reported fourth-quarter EPS by about a combined $6.21 ($0.47 per share for lawsuit settlement, $4.88 per share for pension accounting change, $0.86 per share for aircraft retirement), but will be excluded from adjusted results,” according to William Blair.
   The adoption of mark-to-market pension accounting to make operating performance more transparent “will result in immediately recognizing actuarial gains and losses in the fourth quarter of the fiscal year as opposed to amortizing them over multiple years,” said the investment advisor.
   “Adopting the mark-to-market approach will align our accounting to provide greater transparency by removing certain legacy pension costs from segment operating results and recognizing them in a year-end adjustment,” said Alan B. Graf, Jr., executive vice president and chief financial officer of FedEx Corp. “This change has no operational or cash-flow impact and, importantly, does not affect benefits for plan participants. In addition, the funded status of our principal plan remains very strong.”
   William Blair estimates FedEx’s revenues will increase 3 percent to $12.2 billion in the fiscal fourth quarter of 2015, with earnings per share growing 8 percent to $2.65 per share.
   For the full fiscal 2015 year, the investment firm projects revenues will rise 4 percent to $47.6 billion, with EPS increasing 32 percent to $8.90 per share. Looking even further ahead, William Blair forecasts revenue growth of 7 percent to $50.6 billion in fiscal 2016, with EPS increasing 22 percent to $10.90 per share.