FedEx posts strong fiscal Q4 and FY 2017 earnings results

FedEx finished Fiscal Year 2017 in solid fashion, based on earnings results issued late yesterday.

Earnings per share for the fiscal fourth quarter at $4.25 on an adjusted basis were well ahead of Wall Street estimates of $3.88 and up 22.4% annually.  Revenue was up 17.2% at $15.7 billion, and operating income at $1.76 billion was up 14.3%.

For Fiscal Year 2017, revenue at $60.3 billion was up 16.5%, and operating income was up 8.6% at $5.48 billion.

“Strong fourth quarter results completed an outstanding fiscal 2017,” said FedEx Chairman and CEO on the company’s earnings call yesterday. “We boosted long-term value for share owners, delivered an outstanding peak season with our highest ever volumes and service levels, invested heavily in several strategic areas and managed yields and volumes extremely well. Continued investments, integration and innovations should improve margins, cash flows, returns and earnings per share over the next several years. Modernizing the FedEx aircraft fleet and expanding FedEx Ground capacity continue to be major strategic programs, while the integrations of TNT, FedEx Supply Chain and FedEx CrossBorder are filling strategic gaps in our global portfolio.”

Individual unit quarterly performances: 

FedEx Express adjusted quarterly revenue, which excluded TNT Express integration expenses, was up 7% annually at $7.18 billion, and operating income rose 12% to $863 million. FedEx attributed the revenue gain to higher package volume paced by international export growth at 5% and increased base rates, with operating results driven by the aforementioned factors, as well as a positive net fuel benefit and cost management initiatives, with $46 million in expenses related to the TNT Express integration.

Total quarterly package revenue was up 7% at $5.718 billion, with U.S. package revenue up 7% at $3.718 billion and total international export package revenue up 8% at $2.205 billion.

Total average daily packages at 4.212 million were up 3%, with total daily U.S. domestic packages flat at 2.659 million and revenue per package up 7% at $18.39. Total daily international export packages at 939,000 were up 8%, and revenue was up 2% at $55.23.

TNT Express revenue came in at $1.91 billion, with operating income at $83 million. FedEx said these results include $37 million in integration expenses, including restructuring charges and $20 million of intangible amortization expense.

FedEx Ground revenue rose 9% to $4.68 billion, and operating income was up 7% at $702 million. FedEx said that higher base rates and average daily package volume growth at 3% paced quarterly growth. 

FedEx Freight, the company’s less-than-truckload segment, saw revenue head up 6% to $1.70 billion, with operating income down 3% at $133 million. Average daily shipments were flat, with the company citing a focus on revenue quality.

A key theme of the earnings call centered around the upcoming peak season from an operational perspective, as well as a pricing one, too, with this earnings release on the heels of an announcement from FedEx’ main rival, UPS, whom announced a peak season pricing hike earlier this week.

“Preparation is underway for the 2017 peak holiday shipping season,” said Raj Subramaniam, Executive Vice President, Global Strategy, Marketing and Communications, on the call. “The expectation is for another record peak season with multiple days that'll set records for package pickup and delivery. We continue to work directly with relatively small number of large customers that drive the majority of the surge and demand to ensure that we have appropriate pricing related to volume expectations and capacity needs.”

Jerry Hempstead, president of parcel consultancy Hempstead Associates called FedEx’ fourth quarter and fiscal year results fairly stellar, noting how they were strong everywhere, save for LTL, which was largely due to efforts focused on yield improvement in a very competitive market, especially when compared to parcel and air freight. 

But he noted that the subject of whether or not FedEx will implement some form of peak season pricing was front and center.

“They dodged the question when asked,” he said. “I suspect programmers in Memphis are charged with the mission of figuring out how much work would it be to program a similar fee and how much revenue will it bring in. FedEx continued to reiterate that it's their intent, at least this year, to work with the 100 largest offenders of the peak bubble in residential and handle the yield problem surgically. Stay tuned. This peak Pricing issue isn't going away and it's not going to get prettier.”