FedEx Corporation (FDX) on Q3 2021 Results - Earnings Call Transcript
Operator: Good day, everyone, and welcome to the FedEx Corporation Third Quarter Fiscal Year 2021 Earnings Conference Call. Today's call is being recorded. Mickey Foster: Good afternoon, and welcome to FedEx Corporation's third quarter earnings conference call. The third quarter Form 10-Q, earnings release, stat book as well as our economic forecast on our website at fedex.com. This call is being streamed from our website where the replay will be available for about one year. Joining us on the call today are members of the media. During our question-and-answer session, callers will be limited to one question in order to allow us to accommodate all those who would like to participate. I want to remind all listeners that FedEx Corporation desires to take advantage of the Safe Harbor provisions of the Private Securities Litigation Reform Act. Certain statements in this conference call, such as projections regarding future performance, may be considered forward-looking statements within the meaning of the act. Such forward-looking statements are subject to risks, uncertainties and other factors, which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For additional information on these factors, please refer to our press releases and filings with the SEC. Please refer to the Investor Relations portion of our website at fedex.com for a reconciliation of the non-GAAP financial measures discussed on the call to the most directly comparable GAAP measures. Joining us on the call today are Fred Smith, Chairman and CEO; Raj Subramaniam, President and COO; Mike Lenz, Executive VP and CFO; Mark Allen, Executive VP, General Counsel and Secretary; Rob Carter, Executive Vice President, FedEx Information Services and CIO, Brie Carere, Executive Vice President, Chief Marketing and Communications Officer; Jill Brannon, Executive Vice President and Chief Sales Officer; Don Colleran, President and CEO of Fedex Express; Henry Maier, President and CEO of FedEx Ground; John Smith, President and CEO-Elect of FedEx Ground, and Lance Moll, President and CEO of FedEx Freight. And now, Fred Smith will share his views on the quarter. Fred Smith: Thank you, Mickey. First, I want to say how immensely proud I am of our FedEx team members. Since our last earnings call, they've completed a historic peak season and using the power of our expanded seven-day-a-week FedEx Ground operations, our team handled record-breaking volumes throughout the holiday shipping season. Raj Subramaniam: Thank you, Fred and good afternoon everybody. Q3 was a strong quarter of growth for FedEx. Despite challenging circumstances, the team performed exceptionally well through the biggest peak season in our company's history. This included delivering nearly 0.5 billion holiday packages, transporting the first shipment of COVID-19 vaccines here in the US, and increasing collaboration across operating companies. Our results speak for themselves. In December, we achieved the highest monthly totals in our company's history in both revenue and operating profit. Results in December were different than previous years. We better maximized our available capacity, and as Brie will cover in a moment, better aligned prices to incremental costs. Peak 2020 was unlike any peak experience before and sets a new standard for future peak seasons. As Fred mentioned, our operations were impacted by last month's severe winter weather throughout the United States. Mike will expand more on the scope and unique nature of these storms. And I'm sure many of you have seen reports in the last couple of days, which illustrate the impact these storms had on the overall US economy, including retail sales and manufacturing output. We implemented numerous contingencies to mitigate the impact, including adding sorts, line haul and collaborating across our network to assist in the recovery. I'm very proud of the team for managing through this very challenging situation. Now, speaking of the team, we announced that Henry Maier will retire this summer and named John Smith, former President and CEO of FedEx Freight, his successor. Lance Moll, former SVP of Operations at FedEx Freight, has been promoted to CEO, and we're pleased to have all these three gentlemen on the call today. Now, turning to FedEx Ground. The outstanding margin improvement for Ground in Q3 highlights the success of our ongoing strategic initiatives and investments to improve efficiency and reduce costs associated with the last mile even amid record residential volume levels. These investments continue to pay off. Let me share three examples. Number one, we saw a meaningful improvement in last mile efficiency as service providers improve their stops per hour 21% year-over-year in Q3. Number two, the average cost per stop decreased by 12% year-over-year. And number three, we maximized our assets, expanding to seven-day operations and integrating Ground economy, or formerly FedEx SmartPost, reduced our fixed cost per package by 4% year-over-year. We remain very optimistic for continued profitable growth at Ground. Brie Carere: Thank you, Raj. Good afternoon, everyone. In the United States, we are seeing strong growth and momentum. The U.S. domestic parcel market is expected to grow to 101 million packages a day by calendar year 2022, with e-commerce contributing 86% of total U.S. market growth. Mike Lenz: Thank you, Brie, and good afternoon, everyone. FedEx delivered significantly improved financial results during the quarter, as we met the challenges of rising demand and limited capacity during our peak season and overcame severe winter weather in February. Adjusted operating profit increased 120%, and adjusted operating margin increased 210 basis points, primarily due to strong volume growth in U.S. domestic residential package, a 41% increase in FedEx international priority package volume, led by Asia and Europe; and solid execution of our revenue management strategies in the face of increasing demand across all our transportation segments. These gains were partially offset by four noteworthy factors. First, higher variable incentive compensation expense of $485 million, including a $125 million special bonus for global frontline team members at FedEx Express; second, lower revenues and higher costs due to significant weather events that reduced operating income by an estimated $350 million; third, the estimated impact of having one fewer operating week day, which was approximately $150 million; and lastly, consolidated direct COVID-19-related cost of approximately $60 million, which does not capture the many accommodations we continue to make across all our operations for the safety of our employees and to comply with various regulations and guidelines. Given its significance, I want to add further context around the adverse weather impact. First, we always anticipate and have contingencies for demand and operational impacts during our fiscal third quarter, which spans the most active winter weather months. The mid to late February events, in particular, impacted many parts of the country, but were historic throughout the South Central Corridor of the US. The snow amounts in Memphis had not been seen in over 50 years prior to the founding of FedEx and when coupled with a record time nine consecutive days below freezing, had a significant impact on our operations, as Fred and Raj mentioned. Our Indianapolis and North Texas Express hubs were impacted as well. Demand was deferred as significant portions of the US population were impacted by the various weather events. Of the $350 million estimated impact, $240 million was at Express, $85 million at Ground, and $25 million at Freight. Despite that, the Express segment reported adjusted operating profit of $514 million with an adjusted operating margin of 4.8%, up 260 basis points, driven by significant volume growth in both international export and US domestic package, as well as higher international priority yields. In the quarter, Express absorbed $340 million higher variable incentive compensation expense and was on pace to deliver record third quarter operating profit prior to the February weather. FedEx Ground had an exceptional peak and third quarter, growing operating margin 270 basis points over the prior year to 8.8%. Operating income of $702 million was the highest third quarter in FedEx Ground's history. Yield grew 11%, while volumes were up 25%, resulting in 37% growth in revenues, which more than offset headwinds, including increased payments to our independent service providers, higher labor rates, and higher variable incentive compensation of $70 million. As Raj and Brie highlighted, our commercial and operational initiatives are yielding and will continue to yield profitable growth at Ground, as we capitalize on the e-commerce opportunity. Turning to FedEx Freight, operating income increased 5% despite the impact of increased variable compensation and the weather. Freight continues to post excellent results with their focus on revenue quality, aligning their cost structure with current business levels, and improving operational efficiencies. Freight also provided critical peak season operational support to both Ground and Express. Our effective tax rate was 15% for the quarter due to tax benefits of $108 million, resulting from a tax rate increase in the Netherlands applied to a deferred tax balances and associated with a $300 million voluntary contribution to our qualified US pension plans. Now, turning to what's ahead. While there remains a degree of uncertainty as we begin to see progress in combating the pandemic, we are projecting full year adjusted earnings per share of $17.60 to $18.20, compared to $9.50 adjusted EPS in FY 2020. We expect our effective tax rate prior to the year end mark-to-market adjustment to be between 21% and 22% for the full year fiscal 2021. We expect higher revenue, operating income, and operating margins on a year-over-year basis at all our transportation segments in the fourth quarter, which does include one additional operating week day. These forecasts assume continued recovery in US industrial production and global trade, no additional COVID-19-related business restrictions, and current fuel price expectations. With this forecast, we expect higher variable incentive compensation expense in the fourth quarter, as we plan to reward our employees for their achievements this year. The year-over-year increase is expected to be slightly higher than the third quarter excluding the $125 million special bonus I mentioned previously. Earlier Fred mentioned our sustainability initiatives and we will record our $100 million pledge to Yale University in our fourth quarter results. For Express in the fourth quarter, there will be no benefit from the reduction in the aviation excise tax and the CARES Act, which expired on December 31st. In addition, Express maintenance costs will be higher year-over-year in the fourth quarter as we execute on our flexible air fleet strategy. Just over a year ago, we shared with you plans to temporarily park the equivalent of seven MD-11s. Given the increased demand, we are efficiently adding needed capacity for our customers by investing in maintenance expense to utilize aircraft from temporary storage. As of now, we plan to have no temporarily parked MD-11s prior to next peak season. This illustrates our ability to flex capacity up or down in a financially efficient manner in response to changes in the market. Our capital spending focus remains on strategic investments that will reduce our cost structure, improve our efficiency, and increase our capacity to profitably meet market growth demands. Our FY 2021 CapEx forecast is now $5.7 billion due to changes in the timing of aircraft payments, as well as the acceleration of FedEx Ground capacity initiatives. That projects to roughly 6.9% of expected revenue, which is the lowest level in over 10 years. While we have not finalized our FY 2022 plans, capital spending will increase, as we invest in capacity and proceed with investments in replacement capital previously deferred. That said, I anticipate CapEx, as a percentage of revenue will be 8% or less, which remains less than our historical capital intensity. We’ll provide more specifics in June. Looking at liquidity on the balance sheet, we ended the third quarter with $8.9 billion in cash and cash equivalents, and on Tuesday, renewed our $2 billion five-year credit agreement and $1.5 billion 364-day credit agreement. The key aspect of our capital allocation strategy moving forward will be strengthening our balance sheet and repayment of outstanding debt. Given our strong cash flows and liquidity position, we are evaluating potential transactions to reduce and refinance existing debt. The timing of any transaction will be based on market conditions, and we would incur costs related to these transactions, which may be material. I'll close by reiterating, I have great confidence in our ability to build on the successes we have had this year as we execute our plans to generate sustainable long-term growth in earnings and cash flow. And with that, we can move to the question-and-answer session. Question-and: Operator: Thank you. And first, we'll go to Chris Wetherbee from Citi. Your line is open. Chris Wetherbee: Yeah. Hey, thanks. Good afternoon. Maybe I want to start on the Ground side and understand, I guess, first, around Ground pricing, so significant progress has been made so far. But I wanted to get a sense of where do you think you are in the process of repricing this product up for the service that you're offering and ultimately, the demand in the market right now? And then maybe as we think about how's that and mix may impact margins as we move forward, say, into fiscal 2022, clearly, we've moved – are very heavily overweight towards B2C, over the course of the last 12 months. But as B2B grows, it maybe even takes a little bit of market share. How should that play through your ground margins? Brie Carere: Thanks for the question, Chris. It's Brie speaking. You know, from a yield strategy perspective, we still believe we have opportunity from a mix perspective. As you saw this quarter was probably the most dramatic or not probably was the most dramatic movement we've been able to make from a product perspective. You're going to see that shift throughout this year as capacity – we anticipate capacity throughout this calendar year will be constrained. And as a result, as I mentioned, we've got to prioritize our SAM growth. You heard 35%. It's the best segment performance we've got from a small perspective. So we're going to prioritize that. It will continue to work our yields up. In addition to that, the FedEx economy product is something that we are very focused on, and it will add dramatic yield upside from here out. Henry? Henry Maier: Hi, Chris. Let me take the margin question. First of all, in Q4, we expect teens – margins to be in the teens. But let me speak to how we see the business beyond that. First, we believe there's considerable operating leverage still to be realized in this business. Strategic initiatives will help ensure the right packages are on the right sort, on the right day for on-time delivery. They also ensure that overnight sorts are reserved for next-day volume, enabling the right balance of sort capacity in the network. These are critical capabilities for a seven-day network operation. We're also implementing dynamic scheduling tools to match sort, staffing, headcount more closely to volumes, thereby improving dock productivity and our dock expense. And we're rolling out capabilities for certain upstream volume in the network to bypass station sortation and transfer directly to delivery vehicles, freeing up valuable station capacity. None of these initiatives require brick-and-mortar. They're possible through industry leading technology, AI and machine learning and are developed using a safe agile framework and tools. So with all of that, in my view, as we continue to transform the FedEx Ground business, FedEx Ground's best days are still ahead of them. Chris Wetherbee: Thanks for the time. Operator: And next, we'll go to Ken Hoexter from Bank of America. Your line is open. Ken Hoexter: Great. Good afternoon. Let me switch over to Express. And, I guess, if you exclude the weather impacts, the 4.8% goes up to maybe upper single-digits in terms of margin. Maybe you could talk about the – Brie, the return of B2B on the Express side, same thing that you were just talking on Ground. Maybe you were talking about pricing starting to disappear in 12 months. So how do you look at this business? Do you see it transitioning back to double-digit margins, or is there some structural change that keeps that at the single-digit levels? Brie Carere: Hi, Ken. It's Brie. I'll start with the pricing and the yield element and then turn it back over to Don and Mike. From a yield perspective and from a B2B, as we mentioned, as of January, here in the United States our B2B volume was back to pre-COVID level. The mix within the B2B wasn't what historically we have seen. It was obviously heavy healthcare, heavy retail, heavy tech. We have not seen it fully come back in automotive and industrial. So we think that, there's some upside there. When you look at the B2B volume outside of the United States, at a whole holistic level, we're back, but Europe is not. So we see there still opportunity intra-Europe and intercontinental outbound from Europe. The European team has done a phenomenal job of shoring up volume, but it is B2C volume that they've shored up that gap with. So I still think that there is some B2B upside coming out of Europe still. From a yield perspective, we're feeling pretty confident in our yields throughout this calendar year from an International Express as well as a Domestic Express. There is pressure on the yield from a weight perspective, because the e-commerce mix will continue to increase outside of the United States at Express. So, overall, we're quite comfortable from a yield growth and opportunity perspective for the next 12 months, and I'll turn it over to Mike? Mike Lenz: Yes. Chris, as I said, this is Mike. Certainly, in the fourth quarter, we'll see margin gains at all three of the transportation segments. You can't get to the guidance that we put out there without that falling into place, as well as the other context I gave you. And we're highly confident we can build on the momentum here with the strategies and the plans that have been outlined, but we're not going to be given forward margin expectations. We'll have more to say about our outlook for 2022 in June. Don? Don Colleran: Yes, Mike and Brie, just to add a few things to your comments. One is, I think, Raj had mentioned in his prepared remarks, about the strength of the quarter. And it was a strong quarter for us, highlighted by the best December we've had in the company's history, and on track to provide that same level of performance for the quarter, until the weather hit. Now this is not a comment about would have, should have, could have, but it really is one to highlight the strong fundamentals that exist in the Express business right now. We're extremely confident of the fundamentals that we'll continue to deliver into the fourth quarter, as evidence of what we've seen. We had $1.9 billion of revenue growth in that quarter. I thank our excellent sales team around the globe and a wonderful job that the Express operating unit did in terms of monetizing and turning that into a strong performance. As it relates to what we're seeing from a yield perspective. I agree, obviously, with Brie's assessment. We're seeing some fundamentals in our international business, that are quite clear to us in the short, medium and maybe in the longer term. When inventory levels remain low, supply is soft and demand is very strong. And we think that demand is going to even increase as the stimulus checks come into the marketplace. So we think, if you look at it in terms of tri-factor, those fundamental economic issues that we have should continue to benefit us, especially in our international business going forward. Ken Hoexter: Thanks, Don. Mike, Brie, appreciate it. Operator: And next, we'll go to Allison Landry from Credit Suisse. Your line is open. Allison Landry: So, thanks. Good afternoon. Sorry, I was on mute. Just digging a little bit more in terms of the Ground revenue per piece and specifically on Q3, Brie or Henry, could you maybe talk about or break out the contribution to the yield equivalent that came from base price versus the peak surcharges and then mix? I guess, what I'm trying to think through is, how to best think about the sequential yield change in Q4. Normally, I think it's up about 4%. But obviously, maybe the peak surcharges fall off, you have some incremental surcharges in place. So, just looking for a little bit of context in terms of breaking out the contribution of the different pieces there. Thank you. Brie Carere: Hi, Allison. From a pricing strategy perspective, obviously, the vast majority of our volume is on highly complex contractual agreements. And so, it's quite difficult to streamline and break that out for you right now. But what I will tell you is from a Q3 perspective, you saw really us very much focused on our FedEx Ground economy product. We know the spread between the FedEx Ground economy and our FedEx Ground home delivery product; that yield spread, historically, has been too wide. So, we are very focused on prioritizing capacity at the higher-yielding home delivery product. And so you're going to see two things happen. You're going to see us give more capacity to home delivery at the higher yield and you're going to see us increase the yield throughout this calendar year, both through peak surcharges as well as through GRI strategies, and quite frankly, just contractual discussion. So, that's really our focus is closing that gap, prioritizing capacity for home delivery and making sure we've got capacity for our small and medium customers. Allison Landry: Okay. And just any color on what sort of the peak surcharge impact was in Q3 from a dollar perspective or a percentage perspective? Brie Carere: We're not going to give that out at this time, Allison. Allison Landry: Okay. Thank you, guys. Operator: And next we'll go to Jack Atkins from Stephens. Your line is open. Jack Atkins: Great. Good afternoon and thanks for taking my questions. So, Mike, I guess, maybe this one is for you. When I think about the fourth quarter implied guidance, historically, you see a fairly significant ramp in earnings from the third quarter to the fourth quarter. And when you normalize for the weather and the lower tax rate, your guidance -- implied guidance is for maybe a 17% increase in earnings from third quarter to fourth quarter, yypically, it's 50% to 60%. So, I'm just curious if maybe if you can walk us through some of the puts and takes there? Is it a factor of just the broader economy? Is some uncertainty there? Just some conservatism in general. Just can you help us think through the implied fourth quarter guidance and why you wouldn't see more of a normal seasonal ramp there? Thank you. Mike Lenz: Jack, I'm not going to get into de-comping all of the puts and takes that come into seasonality. I guess I would refer back to when I mentioned an effective tax rate for the year of 21% to 22%, that implies a higher tax rate in Q4 than our -- typically, you can rule a thumb for a full year. The statutory federal rate is 21%, 3% or 4% for state and other. So, 25% on a kind of normalized basis. But as we've mentioned on the call, we have had about $300 million of discrete events through year-to-date in Q1 to Q3. So, I think when you kind of normalize for that and look at our underlying operating performance there, it is a very strong Q4 and I'll leave it at that. I talked about some of the other elements that will play into Q4 earlier, so I won't rehash those. But I think when you are able to piece it all together, it will be a very solid operating Q4. Jack Atkins: Okay. Thank you. Operator: And next, we'll go to Jordan Alliger from Goldman Sachs. Your line is open. Jordan Alliger: Yeah. Hi, afternoon. Question, when you think beyond the fiscal fourth quarter of this year and into the next fiscal year, you start getting to some difference in tougher volume comps, especially in the Ground. Is your expectation, though, that with e-commerce continuing even at a decelerating pace that you could still grow the overall volume levels year-over-year? Thanks. Brie Carere: I guess the short answer is, yes. We're anticipating that the market growth, 90% of the market growth is going to come through e-commerce. We've got a long-term outlook at more than 10% CAGR from an e-commerce perspective. So the short answer is, yes. And Mike, I'm sure would like to add something. Mike Lenz: Yeah. Jordan, just -- we threw a lot of numbers at you. But as Brie mentioned, we went from 62% to 70% residential mix, and FedEx Ground's margins were up 270 basis points. So I think that speaks to how we plan to execute on the continued growth of e-commerce. Fred Smith: And, of course, we will be giving an FY 2022 earnings forecast in June. That has been something that's not been available during the pandemic from a lot of companies. But with the forecast that Mike just gave you for the fourth quarter, you can anticipate a full year FY 2022 range at our June call. Jordan Alliger: Thank you. Operator: And next we'll go to Brandon Oglenski from Barclays. Your line is open. Brandon Oglenski: Hi. Good afternoon and thanks for taking my question. Mike, can you talk to the outlook within CapEx is going to be below 8% of revenue and when you look forward on these projects, because I think you mentioned accelerating some of the Ground investments there? Mike Lenz: Brandon, you broke up a little bit, but if I understand asking about one of the CapEx references. So as we said, volume grew 25% at Ground. And so as we came through December, evaluating and looking at what's ahead and the opportunity there, we see that as opportunity. Also, if you look at our -- when you get the chance to look at the stat book in terms of the maintenance CapEx, you can see that our facilities and vehicles, we deferred a lot of that this year. So there will be some amount of those that -- going forward as well. So we'll be -- we'll certainly give you more specifics on that when it comes to June. Brandon Oglenski: Yeah, Mike, I guess I was asking, like, in the longer term context, what are the type of return these projects? Mike Lenz: I think the question is about returns. You broke up again. I will say with very absolute confidence that all of these investments we're making will generate a solid return on investment just as the investments we've made in the last few years are showing results today. Brandon Oglenski: Thank you. Operator: And next we'll go to Amit Mehrotra from Deutsche Bank. Your line is open. Amit Mehrotra: Thanks, operator. Hi, everybody. Henry, I was hoping I could ask you about Ground margins, if that's okay? I think the key question and discussion point we've all had is the long-term outlook for Ground margins, given the secular shift to B2C and the density challenges that obviously come with that. I mean, you guys have made incredible progress on pricing and operations. I'm just wondering, if you can update us -- you gave a little bit of it last quarter, but hoping you can update us on what you think the sustainable margins for Ground -- the Ground business are on an annual basis? And when do you think you can get there? And just related to that, you guys called out $350 million of weather. I was hoping you could talk about what the attribution to Ground business was from that number. Thank you. Mike Lenz: Amit, this is Mike. As I said in my remarks, $85 million of the weather was Ground. Again, we've said, we've given you fourth quarter guidance. We'll have more to say about future outlook in – for FY 2022 in June. But we're very confident of our ability to build on the momentum of generating increased returns and profitability at ground. Amit Mehrotra: Can I ask it another way then since it's the same question? And the spread between pricing costs in Ground was in excess of 300 basis points per package. As B2C recovers, is there any reason why the spread between price and cost per package should moderate over the next four to five, six quarters? Henry Maier: Well, I think the last two quarters, we've given you some guidance on what we've seen unit costs do as we move through the pandemic and we move through the shift in the mix of our business. Obviously, we're going to lap some of those results, but we've had significant reductions in our unit costs as we've gone through the last year as a result of many of the strategic initiatives we've outlined here, and were in, frankly, in Raj's comments. We continue to see considerable operating leverage in the business, and we would expect margins to improve over time. Amit Mehrotra: Thank you, very much. Appreciate it. Operator: And next, we'll go to Tom Wadewitz with UBS. Your line is open. Tom Wadewitz: Yes, good afternoon. Let's see. I wanted to – I think one of the questions that seems to come up is concern about potential to have some of that strength in international rates that's beneficial for Express, that eventually, some of that profitability is going to go back as past device-based comes back. And presumably, that's out very quickly and that you retain a portion of it. I wanted to see, if you could give us a sense of the potential offset from your cost initiatives. Those numbers, if you look at a couple of years, are they potentially in the same magnitude? And I'm thinking in particular of integration of some of the B2C shipments for Express and Ground, but that's helpful on the cost side and potentially TNT and maybe you have other things in mind. Thank you. Raj Subramaniam: So Tom, this is Raj. I'll address it overall. Obviously, it's not possible to give out the numbers by the individual items that you just talked about. However, we -- let me address it broadly by first saying that, the capacity and the commercial carrier -- passenger carriers, we don't expect it to come back in the next 12 months, maybe more, and we expect the premium to remain for that period of time. Even if it does come back, we have the opportunity to flex it, flex our networks. We can -- and that is -- we have demonstrated the capability to flex up. And we will be able to flex it down as needed and they become our partner networks to move deferred traffic. Thirdly, there's a lot of activity that's going on to continue to improve margins in FedEx Express. Our transformation in Europe was one of -- expansion of last-mile optimization is another and very solid activity. So we feel very confident about our future of our Express around the world. I don't know, Don, if you want to add anything more to that? Don Colleran: I think you hit it, Raj. But, clearly, we have a playbook on margin -- improving margin expansion in both our domestic and international business. I think you touched upon and I did in my earlier comments, about why we're confident over the medium term that the supply and demand curve works in our favor. Capacity is light and we think it will continue to remain that way, until people start traveling again on an intercontinental basis. We don't think that happens for the next 12 to 18 months, because of the various levels of quarantine restrictions that are in all parts of the globe. We're working one of the things that I would want to highlight that you didn't talk to is, our last-mile optimization plans and the impact that, that has on our margin. I think our Chairman says, density is our destiny. And as we can continue to improve the density in the either of our networks, it's very much margin accretive. We're celebrating the one-year anniversary coming up on last-mile optimization, working very closely with Henry and his team. And we're driving a significant amount of volume through the Ground network. And that, those numbers are accelerating on a sequential week-over-week, month-over-month basis. So there's a lot of leverage that we can pull in our business, the European transformation, the domestic transformation. But we have multiple playbooks in play, as we speak, to continue with our margin improvement and expansion. Fred Smith: Let me add something to that. The LMO initiative benefits in two ways. One, it takes lower-yielding residential packages and deferred packages and rural packages out of the Express network, allowing the Express system to concentrate on the high priority B2B and the verticals, particularly those that require ancillary services like SenseAware ID, which is on every single box of vaccines that we're now delivering. I mean, it's almost been flawless, the execution of that. And you can count on your hand the number of issues with the number of vaccines we've delivered in the millions. And so, Express is able to be more Express in the B2C and the less dense areas are more cost effectively served. So it's not just one side. It helps on both sides, which is what Don mentioned about the density, because as we get more residential packages that are not Express in nature, time definite, or something that somebody needs in a residence that Express has to deliver, it helps Ground's density, its cost, its asset utilization. And I think one of the things that I listen to these calls, the last call we had 13 questions on Ground margins. I don't know. We're not going to have 13 this time, but we've probably got half a dozen so far, wouldn't that be close? So, one of the things that's, hard for us to communicate to this group, Henry has mentioned, is the fantastic effect of this technology that we've been rolling out. We don't advertise it all the time, but Rob and his team and some of the fantastic work we have going on in other ways, that's why the confidence level is so high, that we can achieve these things in the future. So, what you all want us to do is to give it to you in a quarterly forecast and so forth, but some of the numbers that Raj laid out there for you, I mean they're stunning in the productivity improvements. So, I think it's important to look a bit at the bigger picture of some of these things. And finally, I'll say, we have a plan to improve Express margins with a lot of passenger capacity in the marketplace and a plan to improve it without a lot of passenger in the market. It's not an either/or situation. And so those are the two recurring questions that come up in these calls. The e-commerce are going to go back because everybody -- the pandemic is over and your margins aren't going to get better and you're not going to do well in Express because the passenger is coming back. Those are inherent in most of the questions, these last two calls. Both of those are wrong. So, I felt I had to step in finally. I've tried not to answer any questions, but you're going down the wrong rabbit hole on both of those areas. Tom Wadewitz: I think if I can just offer one more thought. I think it's just like the magnitude, it seems like they're pretty big programs and pretty favorable. So, I think my question was just trying to understand, if you're going to give us a sense of the magnitude at some point. But they may -- I mean, what you're doing at makes a ton of sense and seems to be a big factor in the results. So, anyway, just -- thanks for all the good perspective on it. Operator: And next, we'll go to Duane Pfennigwerth from Evercore ISI. Your line is open. Duane Pfennigwerth: Hey, I guess that rules out asking seven more Ground questions. Just a couple for me, how much of that $350 million is cost versus volume pushed out into this quarter? Fred Smith: Well, I will tell you most of the $350 million was revenue related. We did have incremental costs at Express for, of course, beyond normal expectations for de-icing and snow removal, additional labor costs. And then I think a couple of you have noted that, we had a significant event with one of our facilities in the Netherlands there as well with the roof collapse, so that is a cost that was in the number as well. But principally, it is revenue from that. And I'll let Brie talk about the overall evolution of where we are now. Brie Carere: Yes, I guess, the best way to think about March is the fundamentals are back. So, we're very confident. If we take February out, our fundamentals look a lot like they did in January, B2B is strong, SMB is back, Ground is in good shape. So, it was February revenue, but we feel very confident about the fundamentals in March. Duane Pfennigwerth: Thank you. And then just a quick high-level on vaccine distribution. I wonder if you could talk about any surprises versus your initial expectations, either the level of activity you've seen, or which segment is being utilized? And thanks for taking the questions. Mike Lenz: Yes. Thanks, and it gives me an opportunity to brag on the team a little bit. So I guess, if there is any surprised me and it shouldn't have is how amazing the team is it that provided this exemplary service. Richard Smith and his organization have done Yeoman's work to make sure that these vaccines move through our network. As Fred said, an extremely high level of efficiency, a handful if that shipments that did not need service. I think what's important to note though, when we talk about the vaccines is really not the raw in absolute numbers that move in our network. In the grand scheme of things, when you look at almost 20 million packages a day moving through our network, this represents a very small portion of that. But what is important to note is a profound impact that these shipments have when they get to destination. And it really just validates our purpose, and it's one we take very, very seriously. The amount of lives that we potentially save, the amount of people we put back to work, amount of small businesses that reopen, the borders that can reopen back to normal levels. That's really the story on that vaccines and that's what we're most proud about. So I guess, the surprise that really shouldn't have been is the amazing work that our team has done to galvanize and be energized around this purpose. And they take that purpose very personally. Get up every morning thinking about the mission that we have to get these vaccines to market, so we can get them in folks on. So I couldn't be more proud of the team in the way that brought these vaccines to market globally. So thanks for asking that question. Raj Subramaniam: Yes, let me also jump in on that. I couldn't wait to -- this is one of the most important work that we have done. And to do the work, to be honest, we need a network. And by that, I mean, you'll be able to pick it up in any one part of the world and deposit in any other part of the world in a couple of days. That requires a network. And only a couple of people can actually do -- a couple of companies can actually do that, and we do that very well. But you also tied to it, the technology component, the SenseAware ID that Fred talked about that’s we rolled that out last year. I mean, it was perfectly timed for the vaccines to provide unprecedented visibility. And we also launched FedEx Surround last year, which provides the AI and ML predictive capability of what is going to happen. You put it all together; we have the best service possible, and as the Chairman pointed out, extremely low level of failures. So again, we are very proud of this work and continue to do our part in ending this pandemic. Operator: And next we'll go to Allison Poliniak from Wells Fargo. Your line is open. Allison Poliniak: Hi. Thanks for taking the question. Just wanted to circle back on the new service capabilities that you talked about within international. Is there a way to help us understand or quantify the market hole you're expecting to sell, what drove the development of those products? And any thought on mix? I'm assuming it would be a better mix business for you longer term. Any thoughts there? Brie Carere: Sure. So I think when you think about what we're going -- what we have going on in the fourth quarter, we really actually have three expansions from a service perspective. We will have; actually, we do have the fastest intra-European ground network as we completed the TNT ground network integration. That will provide growth, both from a B2B perspective, as well as a B2C perspective. So we are absolutely looking to take share intra-Europe, and we see that with the fastest network in Europe. We're confident we can do that. When you think about the intercontinental, we actually, today, have the leading value proposition from Europe to the United States, and we're going to double that. So we are going to have a dramatic advantage over both UPS and DHL. We're adding nine origin countries. So it's going to allow us to really expand both our B2B share as well as our B2C share outside of the major markets in Europe. And then third, as we're talking about FICP, the same story outside of the United States is playing out everywhere in the world with more than 85% of our parcel growth opportunity coming in, in e-commerce. And we did not have an international product that really had the right features of service for serving this massive growth opportunity. And we are under-penetrated. Full disclosure, we are behind both DHL and UPS in this market today, so we see there only upside. When you think about FICP, its features of service are different from our core B2B products in a couple of ways. Number one, we've changed the clearance capabilities. So we now have low-value clearance capabilities, or what we call type 86, which makes it a lower cost entry for the customer. We are automating our clearance capabilities, which reduces the cost to serve. We are changing the terms and conditions on the number of attempts that we will make at the last mile. And of course, we're rolling out retail access points in Europe as well, so that we can provide that access directly to retail, again, lowering the cost to serve. So in all three of these segments, we believe we've got market share upside, but probably most specifically, on the overnight service to the United States, it's a B2B play. On FICP, it's a rapidly growing opportunity for e-commerce. I hope that helps clarify. Allison Poliniak: That's great. Thank you. Operator: And next, we'll go to Scott Group from Wolfe Research. Your line is open. Scott Group: Hey, thanks, afternoon, guys. So Mike, I just had a few questions for you. You've been highlighting incentive comp the last few quarters. If we have more of a normal earnings growth year next year, is more of a normal incentive comp headwind, is that – that's my question. Then the corporate elimination volume has grown to like a run rate of about $1 billion a year. I think there's been a bunch of COVID losses in there. Is that something that should start to normalize to be less of a loss in the future? Mike Lenz: Well, Scott, one thing that I would mention in the corporate unallocated line, as we've mentioned previously, FedEx office results are in there and the print-related revenue, while ADV is up spectacularly at FedEx office, the print-related revenue is significantly impacted by the pandemic. So as we start to come through that, we would anticipate we'll see some improvement there. On the variable comp, I guess, what I would say to you in that is we wouldn't anticipate that to be a headwind looking at FY 2022. I hope that helps. Scott Group: Thank you. Operator: And at this time, I'll turn it back to management for closing remarks. Mickey Foster: Thank you for your participation in FedEx Corporation third quarter earnings conference call. Please feel free to call anyone on the Investor Relations team, if you have additional questions about FedEx. Thank you very much. Operator: And that does conclude our call for today. Thank you for your participation. You may now disconnect.
FedEx Drops 5% as Soft Q1 Outlook and Trade Uncertainty Overshadow Strong Q4
FedEx (NYSE:FDX) shares fell more than 5% intra-day today after the logistics giant issued a weaker-than-expected profit forecast for the current quarter, fueling concerns about global demand and rising trade tensions.
Despite delivering a better-than-anticipated fourth-quarter performance—posting earnings per share of $6.07 on $22.2 billion in revenue, topping analyst estimates—investors focused on the company’s cautious guidance. FedEx projects adjusted Q1 EPS between $3.40 and $4.00, missing Wall Street’s expectation of $4.06.
The company also withheld full-year earnings and revenue guidance, citing a highly uncertain macro environment. CEO Raj Subramaniam described global demand as “volatile” during the earnings call, while executives pointed to rising trade frictions as another headwind. In particular, the decision to end duty-free status for low-cost shipments from China-linked retailers like Shein and Temu has weighed on profitability.
The results from FedEx, often viewed as a bellwether for economic activity, follow growing business caution amid political and trade uncertainty tied to former President Trump’s renewed tough stance on China. Combined with structural cost cuts of $2.2 billion over the past year, FedEx is trying to offset weaker volumes, but near-term visibility remains limited.
Investors appear to be bracing for a rocky start to the new fiscal year, as external pressures continue to cloud the outlook.
FedEx Corporation (NYSE: FDX) Surpasses Earnings Expectations
- FedEx reported earnings per share (EPS) of $6.07, beating the estimated $5.93, and revenue of $22.2 billion, exceeding the forecast of $21.8 billion.
- The company achieved its $4 billion cost-cutting target and plans to further reduce costs by $1 billion in the next fiscal year.
- Despite positive financial results, FedEx's stock fell by about 5% in after-hours trading due to profit guidance for the current quarter slightly below Wall Street's expectations.
FedEx Corporation (NYSE: FDX) is a global leader in transportation, e-commerce, and business services. Known for its overnight shipping service, FedEx operates in over 220 countries and territories. The company competes with major players like UPS and DHL in the logistics industry. On June 24, 2025, FedEx reported impressive financial results, with earnings per share (EPS) of $6.07, surpassing the estimated $5.93. The company also reported revenue of $22.2 billion, exceeding the estimated $21.8 billion.
FedEx's recent financial performance highlights its successful cost-cutting measures. The company achieved its $4 billion cost-cutting target and plans to further reduce costs by $1 billion in the next fiscal year. CEO Raj Subramaniam expressed confidence in the company's transformation initiatives, which focus on integrating networks and reducing costs to create long-term value. Despite these positive results, FedEx's stock fell by about 5% in after-hours trading due to profit guidance for the current quarter that was slightly below Wall Street's expectations.
The company's financial metrics provide insight into its market valuation and financial health. FedEx has a price-to-earnings (P/E) ratio of approximately 14.06, indicating the market's valuation of its earnings. The price-to-sales ratio stands at about 0.63, suggesting that investors are paying 63 cents for every dollar of sales. The enterprise value to sales ratio is around 1.05, reflecting the company's total valuation relative to its sales.
FedEx's operating income increased to $1.79 billion, with an adjusted figure of $2.02 billion, compared to $1.56 billion and $1.87 billion, respectively, in the prior year. The operating margin improved to 8.1%, with an adjusted margin of 9.1%, up from 7.0% and 8.5% in the previous fiscal year. These improvements demonstrate the company's ability to enhance profitability through effective cost management.
Despite the positive financial results, FedEx shares have declined by over 18% year-to-date. The company's debt-to-equity ratio is approximately 1.39, indicating its leverage level. Additionally, FedEx has a current ratio of about 1.24, suggesting its ability to cover short-term liabilities with short-term assets. These metrics provide a comprehensive view of FedEx's financial position and its potential for future growth.
FedEx (NYSE:FDX) Upgraded to "Buy" by Bank of America Securities
- Bank of America Securities upgraded FedEx (NYSE:FDX) to a "Buy" rating, with a current stock price of $229.23.
- FedEx is expected to report fourth-quarter revenue of $21.84 billion, with an EPS prediction of $5.87.
- The stock has shown volatility over the past year, with a high of $313.84 and a low of $194.30.
On June 23, 2025, Bank of America Securities upgraded FedEx (NYSE:FDX) to a "Buy" rating, with the stock priced at $229.23. FedEx is a major player in the logistics and transportation industry, providing services worldwide. The company's competitors include UPS and DHL, making the logistics sector highly competitive.
FedEx is set to release its fourth-quarter financial results soon, which will be crucial for understanding the company's performance. Analysts expect FedEx to report a fourth-quarter revenue of $21.84 billion, slightly down from $22.1 billion in the same quarter last year. Despite this anticipated decline, FedEx has exceeded revenue estimates in the last two quarters, showing resilience in a challenging market.
For earnings per share (EPS), analysts predict $5.87, up from $5.41 in the previous year's fourth quarter. Although FedEx has missed EPS estimates in the last three quarters, it has surpassed them in six of the past ten quarters. This mixed performance makes the upcoming earnings report significant for investors and market strategists.
Currently, FedEx's stock is priced at $229.23, reflecting a positive change of $3.19, or a 1.41% increase. The stock has fluctuated between $223.75 and $229.29 during the day. Over the past year, FedEx has experienced a high of $313.84 and a low of $194.30, indicating volatility in its stock price.
FedEx's market capitalization is approximately $54.92 billion, with a trading volume of 1,621,647 shares. This data highlights the company's significant presence in the market and the interest it generates among investors. The upcoming financial results will be closely watched for any signs of a sustained rebound in FedEx's performance.
FedEx Corporation (NYSE:FDX) Quarterly Earnings Preview
- Analysts predict an earnings per share (EPS) of $5.94 and projected revenue of approximately $21.84 billion for FedEx's upcoming quarterly earnings.
- Despite challenges in the Express unit, FedEx's Q4 earnings are expected to rise by 9.8% year over year.
- The Zacks Consensus Estimate for revenue is slightly lower at $21.7 billion, reflecting a 1.9% decrease from the previous year.
FedEx Corporation, listed as NYSE:FDX, is a global leader in transportation, e-commerce, and business services. The company is set to release its quarterly earnings on June 24, 2025. Analysts predict an earnings per share (EPS) of $5.94, with projected revenue of approximately $21.84 billion. FedEx's performance is closely watched, especially in comparison to competitors like UPS and DHL.
Despite a recent 1.5% downward revision, FedEx's Q4 earnings are expected to rise by 9.8% year over year. This increase is notable given the challenges faced by the Express unit, which is projected to see a 3.2% decline in revenues due to weak demand and low shipping volumes. The company's DRIVE efficiency program aims to mitigate these challenges by reducing salary and operating expenses.
The Zacks Consensus Estimate aligns with Wall Street's EPS prediction of $5.94, while revenue is slightly lower at $21.7 billion, reflecting a 1.9% decrease from the previous year. This downward revision in revenue estimates indicates a reassessment by analysts, which can significantly impact investor sentiment and stock performance.
FedEx's financial metrics provide insight into its market valuation. With a P/E ratio of 13.68, the market values its earnings moderately. The price-to-sales ratio of 0.61 suggests investors pay 61 cents for every dollar of sales. The enterprise value to sales ratio of 1.03 and the enterprise value to operating cash flow ratio of 12.55 highlight the company's valuation relative to its sales and cash flow.
The company's debt-to-equity ratio of 1.39 indicates a balanced use of debt and equity in financing its assets. FedEx's current ratio of 1.24 suggests it has sufficient liquidity to cover short-term liabilities. These financial metrics, along with the anticipated earnings report, will be crucial in determining FedEx's stock performance and investor confidence.
FedEx (NYSE:FDX) COO Sells Shares Amid Mixed Fiscal Q3 2025 Results
- FedEx COO for US and Canada, Smith John Alan, sold 3,345 shares at $243.55 each, leaving him with 23,347 shares.
- The company reported earnings of $4.51 per share, missing the Zacks Consensus Estimate but showing a year-over-year improvement.
- Revenues reached $22.2 billion, surpassing expectations, yet FedEx revised its fiscal 2025 earnings outlook downward due to economic challenges.
On March 27, 2025, Smith John Alan, the Chief Operating Officer for US and Canada at FedEx (NYSE:FDX), sold 3,345 shares of Common Stock at $243.55 each. This transaction leaves him with 23,347 shares. FedEx, a global leader in transportation and logistics, competes with companies like UPS and DHL in delivering packages worldwide.
FedEx recently announced its third-quarter fiscal 2025 results, showing mixed outcomes. The company reported earnings of $4.51 per share, excluding 75 cents from non-recurring items, which fell short of the Zacks Consensus Estimate of $4.65. Despite this, the earnings per share improved by 16.8% year-over-year, thanks to cost-reduction benefits from the DRIVE program.
The company's revenues reached $22.2 billion, surpassing the Zacks Consensus Estimate of $21 billion. However, FedEx revised its fiscal 2025 earnings per share outlook downward due to challenging economic conditions. This marks the second time in four quarters that FedEx has missed earnings estimates, raising concerns among investors.
FedEx's stock is under scrutiny as investors assess its current valuation. The company has a price-to-earnings (P/E) ratio of approximately 14.94, indicating how the market values its earnings. Its price-to-sales ratio is about 0.67, meaning investors pay 67 cents for every dollar of sales, while the enterprise value to sales ratio is around 0.86.
The enterprise value to operating cash flow ratio stands at approximately 10.53, showing the relationship between FedEx's total valuation and its cash flow from operations. The earnings yield is about 6.69%, offering insight into shareholder returns. With a debt-to-equity ratio of approximately 0.27, FedEx maintains a relatively low level of debt compared to its equity, and a current ratio of about 1.24, indicating good liquidity to cover short-term liabilities.
FedEx (NYSE:FDX) COO Sells Shares Amid Mixed Fiscal Q3 2025 Results
- FedEx COO for US and Canada, Smith John Alan, sold 3,345 shares at $243.55 each, leaving him with 23,347 shares.
- The company reported earnings of $4.51 per share, missing the Zacks Consensus Estimate but showing a year-over-year improvement.
- Revenues reached $22.2 billion, surpassing expectations, yet FedEx revised its fiscal 2025 earnings outlook downward due to economic challenges.
On March 27, 2025, Smith John Alan, the Chief Operating Officer for US and Canada at FedEx (NYSE:FDX), sold 3,345 shares of Common Stock at $243.55 each. This transaction leaves him with 23,347 shares. FedEx, a global leader in transportation and logistics, competes with companies like UPS and DHL in delivering packages worldwide.
FedEx recently announced its third-quarter fiscal 2025 results, showing mixed outcomes. The company reported earnings of $4.51 per share, excluding 75 cents from non-recurring items, which fell short of the Zacks Consensus Estimate of $4.65. Despite this, the earnings per share improved by 16.8% year-over-year, thanks to cost-reduction benefits from the DRIVE program.
The company's revenues reached $22.2 billion, surpassing the Zacks Consensus Estimate of $21 billion. However, FedEx revised its fiscal 2025 earnings per share outlook downward due to challenging economic conditions. This marks the second time in four quarters that FedEx has missed earnings estimates, raising concerns among investors.
FedEx's stock is under scrutiny as investors assess its current valuation. The company has a price-to-earnings (P/E) ratio of approximately 14.94, indicating how the market values its earnings. Its price-to-sales ratio is about 0.67, meaning investors pay 67 cents for every dollar of sales, while the enterprise value to sales ratio is around 0.86.
The enterprise value to operating cash flow ratio stands at approximately 10.53, showing the relationship between FedEx's total valuation and its cash flow from operations. The earnings yield is about 6.69%, offering insight into shareholder returns. With a debt-to-equity ratio of approximately 0.27, FedEx maintains a relatively low level of debt compared to its equity, and a current ratio of about 1.24, indicating good liquidity to cover short-term liabilities.
FedEx Soars 5% Following Jefferies’ Upgrade
Jefferies analysts upgraded FedEx (NYSE:FDX) from Hold to Buy, assigning a new price target of $275, slightly down from the previous $300, but reflecting renewed confidence in the company’s internal transformation efforts. As a result, shares surged more than 5% on Monday.
While broader market attention remains fixated on macroeconomic headwinds, Jefferies believes investors are overlooking FedEx’s structural cost improvements, which could drive earnings growth through fiscal 2026 and 2027, even in a sluggish revenue environment.
Key to this outlook are the company’s Network 2.0 restructuring initiative and its Tri-Color optimization strategy, both aimed at streamlining operations and improving profit margins. The analysts view these programs as underappreciated catalysts that could unlock substantial value over the next two years.
In addition, Jefferies highlights that any rebound in industrial activity—a major revenue driver for FedEx—could provide a significant earnings tailwind, amplifying the impact of internal efficiency gains.
Despite recent cuts to guidance and macro pressures, Jefferies sees a favorable risk-reward setup for FedEx, supported by operational transformation and potential cyclical upside, making the stock attractive at current levels.
