FedEx Q3 Earnings: TNT Acquisition, Holiday Season Drive Growth

by Trefis Team
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FedEx (NYSE: FDX) continued its strong growth into the second half of its fiscal 2017, with its third quarter revenues increasing 19% year over year (y-o-y) to $15 billion, primarily driven by the acquisition of TNT Express. In the same period, the company’s bottom line improved marginally, though at a lower pace than its revenues. This is primarily due to integration-related costs from the TNT Express acquisition, higher transportation and fuel expenses. The company’s net income per share increased 13% y-o-y to $2.07.

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In the third quarter, FedEx continued to witness strong revenue growth in its product categories, primarily driven by growth in the e-commerce sector. FedEx Freight and FedEx Express grew a moderate 3.1% and 3.4%, respectively. The company’s acquisition of TNT Express, which was completed in May 2016, added an additional $1.8 billion to the company’s top line. Excluding the revenues of TNT Express, FedEx’s top line witnessed organic growth of 4%. The growth in the company’s top line has outpaced its expenses, leading to noteworthy growth in the company’s operating income.

FedEx Ground continued its strong performance, largely due to e-commerce growth. In the third quarter, FedEx Ground’s revenues increased 6% on a y-o-y basis, primarily due to a 7% rise in FedEx Ground revenues and a modest 2% rise in FedEx Supply Chain’s revenues, partially offset by one less working day in the quarter. However, the company took a slew of measures – such as increasing the workforce by 50,000 – in order to cater to increased demands of the holiday season, and that impacted the segment’s operating margins, which declined 1.6 percentage points y-o-y to 11%. The segment’s average daily volume rose 2% y-o-y due to higher e-commerce demand, while the revenue per package increased 6% over the same period.

FedEx Express In Focus

FedEx continues to make significant investments to improve its facilities, which bodes well for the company’s future. In the first nine months of the fiscal year, the company’s capital spending of $3.8 billion, an increase of 6.4% over the same period last year, was focused on expansion of its existing facilities, improving transportation facilities, both ground and air, and integrating TNT Express’ operations into FedEx Express. The company’s capital expenditures as a percentage of revenue were 8.5%, 100 basis points lower than last year.

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Going forward, FedEx expects its capital expenditure as a percentage of revenue to decline from the current levels. The company plans to focus most of its capital expenditures on completing its existing projects and improving the operations at FedEx Express.

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