FedEx Boosts 2017 Outlook After Topping Quarterly Estimates

  • E-commerce growth fuels gains in first-quarter revenue, volume
  • Shipper sees $750 million in annual benefits from TNT Express

FedEx Corp., owner of the world’s largest cargo airline, raised its full-year profit forecast as continued growth in e-commerce deliveries helped push earnings for the fiscal first quarter ahead of analysts’ estimates.

Higher yields on air and ground shipments and rising package volumes bolstered quarterly results, the courier said in a statement Tuesday. FedEx continued to benefit from a multiyear cost-cutting effort at its FedEx Express unit and from ongoing expansion of its ground delivery business, which according to the company is on track to gain market share for the 18th straight year.

“I think initial guidance is a positive as it shows an improved outlook for the core business,” Logan Purk, an analyst at Edward Jones & Co., said in an e-mail. “The quarter was solid. Good volume and overall demand across the business.”

Adjusted earnings for fiscal 2017 will be $11.85 to $12.35 a share, excluding pension accounting adjustments and TNT Express, FedEx said. Its earlier forecast was $11.75 to $12.25.

FedEx also provided the first specifics on the impact of this year’s $4.9 billion acquisition of Dutch shipper TNT Express. Integrating the new property will take four years and produce $750 million in annual benefits, FedEx Chief Financial Officer Alan Graf said on a conference call. TNT’s extensive ground-delivery network in Europe makes FedEx a stronger competitor to market leaders United Parcel Service Inc. and Deutsche Post AG’s DHL. 

TNT Impact

Shares rose 3 percent to $167.49 in after-market trading. FedEx gained 9.2 percent this year through Tuesday’s close.

TNT Express contributed $1.8 billion in sales in the quarter and operating income of $34 million excluding integration and restructuring costs. Integration of the company with FedEx is already ahead of schedule, Graf said. FedEx expects $700 million to $800 million in total integration costs.

“We don’t see any surprises or disappointments at this point,” he said. “I’m very upbeat with where we are in this process.”

Expenses related to the TNT deal will hurt earnings this year and boost profit in fiscal 2018, Graf said.

Hiring Plan

FedEx said it would add more than 50,000 temporary workers for what it expects to be a record holiday season, fueled by expansion of e-commerce. That’s down from last year, when it hired at least 55,000 workers to handle a 15 percent expansion in the number of packages. UPS last week said it expected to bring on 95,000 seasonal employees, about the same as a year earlier.

An accurate gauge of peak season demand can make a large difference in performance for a shipping company. Last season, FedEx faced heavy criticism for failing to deliver some packages by Christmas because of an unexpected last-minute surge in online purchases.

FedEx said it added 19 automated sorting stations and four major distribution centers to its ground network since last year’s peak. It expects each of four Mondays in the holiday period this year to “be among the busiest in company history,” said Mike Glenn, president of FedEx Services. FedEx Express will deliver on Christmas Eve this year, although FedEx Ground won’t.

U.S. gross domestic product may grow 1.6 percent in 2016 and 2.3 percent next year, FedEx executives said on a conference call Tuesday. Global GDP may increase 2.2 percent this year and 2.6 percent in 2017, the company said. U.S. industrial production is expected to fall 0.,7 percent this year and rise 2.2 percent in 2017.

Raising Rates

FedEx said Monday it would raise U.S. shipping rates an average 3.9 percent at FedEx Express effective Jan. 2 and 4.9 percent at FedEx Ground and FedEx Home Delivery. The company also said it would adjust fuel surcharges on a weekly basis, instead of monthly, starting Feb. 6. The action reduces the lag time between changes in fuel prices and when the surcharge adjusts to two weeks from two months. The shipping-rate increase follows similar steps by UPS.

Adjusted first-quarter earnings climbed to $2.90 a share in the three months ended Aug. 31, compared with the $2.79 average of analyst estimates compiled by Bloomberg. Sales increased to $14.7 billion, topping analysts’ expectations of $14.6 billion.

Including TNT Express, FedEx said full-year adjusted earnings will be $10.85 to $11.35.

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