FedEx Climbs Most in Six Months on Profit Outlook, TNT

  • Courier sees eventual TNT annual benefit of $750 million
  • Express, Ground operations better than expected in quarter

FedEx Corp. rose the most in six months after raising its full-year earnings forecast and reporting a first-quarter profit that exceeded analysts’ estimates.

The courier also provided the first detailed outlook for the financial impact of adding Dutch shipper TNT Express, saying it would generate $750 million in annual benefits once the integration is complete in 2020. FedEx bought the company earlier this year for $4.9 billion.

TNT’s extensive ground-delivery network makes FedEx a stronger competitor to European market leaders United Parcel Service Inc. and Deutsche Post AG’s DHL. FedEx, based in Memphis, Tennessee, also is benefiting from a $1.6 billion cost-cutting program at its FedEx Express cargo airline and $2 billion in spending to expand the FedEx Ground network.

The shares were driven by “the synergies coming in better than expected longer term” regarding the TNT purchase, John Barnes, an RBC Capital Markets analyst, said in an interview. “When you add it all together, in general it was a little bit better outlook. It also doesn’t hurt that the core business is doing OK.”

FedEx climbed 6.3 percent to $172.84 at 11:10 a.m. in New York after earlier rising as much as 6.6 percent for the biggest intraday advance since March. The shipping company’s gain was the largest on the Standard & Poor’s 500 Index. The shares rose 9.2 percent this year through Tuesday.

TNT contributed $1.8 billion in sales in the quarter and operating income of $34 million excluding integration and restructuring costs. Work to mesh operations of the two companies is already ahead of schedule, Chief Financial Officer Alan Graf said on an earnings conference call Tuesday evening. FedEx expects $700 million to $800 million in total integration costs.

“We continue to believe that the integration of TNT provides the company with its next earnings growth driver and, using the success of the profit improvement plan at Express as a guide, have confidence that FedEx will once again deliver on its stated objectives,” Jack Atkins, an analyst at Stephens Inc., said in a note Wednesday.

Adjusted earnings for fiscal 2017 will be $11.85 to $12.35 a share, excluding pension accounting adjustments and TNT-related costs, FedEx said, an improvement from an earlier $11.75 to $12.25 outlook.

Fiscal first-quarter adjusted 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. Results were better than expected at both FedEx Express, because of operating cost management, and FedEx Ground, on higher revenue per package and volume, Benjamin Hartford, a Robert W. Baird analyst, said in a report.

FedEx will add more than 50,000 temporary workers for what it expects to be a record holiday season, fueled by expansion of e-commerce, the company said. That is down from last year, when it planned to hire at least 55,000 workers. UPS, which has a larger domestic ground delivery network, last week said it expected to bring on 95,000 seasonal employees, about the same as a year earlier.

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