To sign up for Analytiqa's free weekly newsletter, please enter your details below.
Analytiqa will not share this information with third parties.
Operating results declined primarily due to weakening global economic conditions
FedEx has reported consolidated results for the first quarter ended 31 August. The Company’s performance continues to be negatively impacted by a weakening global macro environment driven by increasing trade tensions and policy uncertainty.
Revenue declined marginally, by US$4.0 million, to US$17,048.0 million. Operating income dropped 8.8% to US$977.0 million as the operating margin fell to 5.7% from 6.3%. Net income decreased by 10.8% to US$745.0 million.
Operating results declined primarily due to weakening global economic conditions, increased costs to expand service offerings and continued mix shift to lower-yielding services. The impact of one fewer operating day and the loss of business from a large customer also negatively impacted results. These factors were partially offset by lower variable incentive compensation expenses, revenue growth at FedEx Ground and increased yields at FedEx Freight.
Looking ahead, FedEx is lowering its fiscal 2020 earnings forecast as the Company’s revenue outlook has been reduced due to increased trade tensions and additional weakening of global economic conditions since the Company’s initial fiscal 2020 forecast in June. The Company’s revised outlook also reflects increased FedEx Ground costs and August’s loss of FedEx Ground business from a large customer. In addition, the FedEx ETR is now expected to be 24.0% to 26.0% before the year-end MTM retirement plan accounting adjustment, due to lower-than-expected earnings in certain non-US jurisdictions.
FedEx now forecasts earnings of US$10.00 to US$12.00 per diluted share before the year-end MTM retirement plan accounting adjustment, and earnings of US$11.00 to US$13.00 per diluted share before the year-end MTM retirement plan accounting adjustment and excluding TNT Express integration expenses. The capital spending forecast remains US$5.9 billion.
FedEx is implementing additional cost-reduction initiatives to mitigate the effects of macroeconomic uncertainty, including post-peak reductions to the global FedEx Express air network to better match capacity with demand. That said, the Company is continuing to make strategic investments to improve capabilities and efficiency, which it expect will drive long-term increases in earnings, margins, cash flows and returns.
These forecasts assume moderate US economic growth, the Company’s current fuel price expectations, no further weakening in international economic conditions from the Company’s current forecast and no additional adverse developments in international trade policies and relations. FedEx’s ETR and earnings per share outlooks are based on the company’s current interpretations of the Tax Cuts and Jobs Act (TCJA) and related regulations and guidance, and are subject to change based on future guidance, as well as FedEx’s ability to defend its interpretations. These forecasts do not include potential costs associated with capacity reductions.