FedEx Q2 2018 Earnings: Shares Soar On Stellar Earnings; Company Raises Guidance

by Trefis Team
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After a rather mixed earnings in Q1, FedEx (NYSE: FDX) seems to have really impressed investors this quarter. While the impacts of the cyber attack on its TNT business continues to hurt financials, the company managed to post great top and bottom line growth, while beating the consensus estimates by a significant margin. The jump in the results is primarily attributable to a favorable net impact from fuel, higher base rates, and increased volumes that came in higher than expected this time around. According to the company, FedEx is ready to see yet another record holiday season spurred on by the heavy growth in e-commerce shipments.

Key Highlights From The Quarter:

  • As mentioned previously, the company is expecting to see another record holiday season this time around. In a previous announcement, FedEx said that it expects to deliver close to 400 million packages in the season, with three busy Mondays driving a record-breaking pace. The Memphis-based company is forecast to deliver about 26 million packages a day on those Mondays, more than double the usual amount, as online retailers ship out orders placed over the weekends. This led to substantial growth in volumes, consequently helping the top line jump in the quarter.
  • This quarter saw results hurt to the tune of almost $100 million in the Express segment on the back of the cyber attack at TNT, primarily from loss of revenue due to decreased shipments in the TNT network. In the previous quarter, the company had noted that it is accelerating portions of its TNT integration as a result of the attack. This accelerated integration led to expenses of about $96 million for Express. That said, despite the several challenges at the segment, the total international package volume increased by a modest 5%.
  • In the previous quarter’s earnings call, the company lowered its earnings guidance to account for the aforementioned cyber attack on TNT. The company said earnings will come in around $11.05-$11.85 per share, below its previous projection for earnings between $12 and $12.80 per share. However, in Q2, the company raised the guidance to $12.70-$13.30 per share excluding expenses from the accelerated TNT integration and certain mark to market pension adjustments.
  • Additionally, in the call, management commented on how the Tax Cuts and Jobs Act, if enacted, could potentially increase the earnings per share next year by almost $4.40 to $5.50 per diluted share for FY 2018. This is primarily attributable to the revaluation of the company’s net deferred tax liabilities. This range is also inclusive of an estimated $0.85 to $1 per diluted share on the back of a lower tax rate on FY 2018.

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