Industrials

Brooke Sutherland is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

(Updated )

A multi-billion-dollar merger integration wasn't built in 28 days. 

FedEx finally closed its $4.8 billion purchase of TNT Express in May, and the takeover of the European package-delivery company was widely expected to be the focus of its earnings report on Tuesday. Executives were more than happy to chat about it -- just not in too much detail.

They expect about $200 million in TNT integration costs in fiscal 2017, but they're not sure yet how those expenses -- or the revenue and profitability of the company -- will affect FedEx's overall outlook for the year that began June 1.

Light on the Details
FedEx shares fell as much as 3.3 percent in after-market trading on Tuesday amid uncertainty about the impact of the TNT deal on earnings guidance already less optimistic than some were hoping.
Source: Bloomberg

FedEx said it expects to generate $11.75 to $12.25 a share in adjusted earnings. Rather unhelpfully, CEO Fred Smith says ``there's nothing in that guidance, pro or con, from TNT." One analyst creatively tried to get around the specifics by asking if the impact of TNT would generally be dilutive to profit this coming year, to which FedEx CFO Alan Graf responded, "Nice try." All he would say is that the deal will be accretive in fiscal 2018. In other words, what investors and analysts got was more of a tire check than a real peek under the hood. And that's all they're going to get for now.  

In all fairness, it is early days on the takeover. Integrating TNT and FedEx's networks is going to be complex and challenging. TNT's infrastructure and IT systems are in need of an upgrade and the European delivery company has struggled to turn a profit. There's no point in FedEx trotting out numbers that it eventually has to backtrack on just a few months later.

But analysts were justified in expecting the company to have a better handle on TNT's business after more than a year of regulatory back and forth on the transaction, not to mention the due diligence process. The extra layer of uncertainty won't do much to boost investors' confidence given that FedEx's earnings guidance was already underwhelming relative to some estimates and the company is also spending heavily on upgrades to its own network. It's more likely that the TNT deal could push earnings below FedEx's given range than deliver a significant boost this year, says Logan Purk of Edward Jones.

Partial Victory
FedEx's fourth-quarter earnings slightly beat analysts' estimates.
Source: Bloomberg

FedEx said it will provide more concrete numbers on TNT when it delivers its next earnings update in September, so at least investors won't have to wait too long. But that begs the question of why the package shipper even bothered to issue guidance at all this go around.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

(Corrects fourth paragraph to show that the CFO, not the CEO, said "Nice try" on the earnings call.)

To contact the author of this story:
Brooke Sutherland in New York at bsutherland7@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net