FedEx Q1 Earnings Review: FedEx Ground, TNT Express Continue to Drive Growth

by Trefis Team
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FedEx (NYSE: FDX) announced solid first quarter earnings for fiscal year 2017 on Tuesday, September 20th. The company’s revenue grew by 19% on a year-on-year basis to $14.7 billion for the quarter and beat market expectations, driven by growth in the FedEx Ground Segment and the addition of TNT Express. The company’s operating profits increased 10.5% y-o-y to $1.26 billion for the quarter. Despite the increase in operating income, the company’s margins declined 70 basis points to 8.6% for the first quarter. The company’s net income increased 3.3% y-o-y to $0.7 billion or $2.65 per share for the quarter. On a non-GAAP basis, the company’s earnings per share were 20% higher than the prior year quarter at $2.90, against Reuters’ compiled consensus estimates of $2.81.

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Revenue Growth

Coming off a strong fiscal year 2016 in which FedEx crossed $50 billion in revenues for the first time, the company continued its growth momentum, which was driven by a rise in volumes and revenue per package across all major segments. Coupled with the booming e-commerce industry and price improvement measures taken by the company, the growth was particularly visible in the FedEx Ground segment, which grew by around 12% y-o-y. The revenues were also bolstered by the addition of TNT Express, which contributed $1.8 billion to the company’s revenues. The increased revenues, aided by a substantial decrease in fuel costs, helped the company record operating profits of $1.26 billion, an increase of 10.5% from the prior year quarter’s figures. Despite the increase in operating income, the company’s margins declined 70 basis points over the prior year quarter, primarily due to integration costs related to TNT Express, network expansion plans and the Outlook restructuring program. FedEx’s net income rose a modest 3% over the prior year quarter to $715 million or $2.65 per share.

Future Outlook

Going forward, the company has increased rates for all of its offerings effective January 2, 2017. The shipment rates for FedEx Express will increase by an average of 3.9% while the rates for FedEx Ground and FedEx Freight will increase by an average of 4.9%. Also, for FedEx Freight and FedEx Ground, the company has changed the dimensional weight divisor from 166 to 139.

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