FedEx posts full-year record sales, but margins remain under pressure

FedEx’s annual results, released on Tuesday, confirmed that the US-based integrated transport and logistics behemoth is growing fast, but margins are under pressure, confirming trends across the transport and logistics industry in the past year.

In fiscal 2018, which ended on 31 May, it posted a record turnover of $65.5bn, up 8.6% against comparable 2017 numbers, ending up with sales slightly above expectations. Most of the growth was organic, given cash outlays from investment, booked as “business acquisitions, net of cash acquired”, was only $179m (fiscal 2017: $0).

Operating income stood at $4.87bn, on a GAAP basis, down from $5.04bn in the prior year, but adjusted non-GAAP income was $5.73bn, up 6.1% for the year.

Regardless of the chosen metric, its underlying profitability was lower than in fiscal 2017, before considering taxes and interest, with operating margins down to 7.4% and 8.7%, on a GAAP and non-GAAP basis, respectively, from 8.4% and 9% in the previous year.

Net income was significantly higher, hitting almost $4.6bn on a reported basis, but full-year net results include, as FedEx said, large tax benefits of $2.1bn ($7.71 per diluted share).

On a reported basis, earnings per share came in at $16.79 against $11.07 one year earlier (+$5.72).

Capital spending for fiscal 2018, meanwhile, was $5.7bn, with operating cash flow of about $4.7bn.

Its $1bn negative free cash flow comes on top of $1bn of cash outlays from buybacks (~ +100%), while dividends were $523m versus $426m in fiscal 2017, which demonstrates its commitment to shrinking the share count while boosting yield, rather than opting for meaningful acquisitions.

Its express unit grew annual revenues by 7% to $36.1bn (+9% in the fourth quarter), while its ground unit turned over almost $18.4bn, up 11% on a comparable basis (+12% in the fourth quarter). The growth rate of freight was the best of all at 12%, reaching $6.8bn for the year.

However, the group revenue growth was outpaced by rising operating expenses (+10%), with salaries and benefits as well as purchased transportation up 8% and 11% respectively, while fuel-related expenses were 22% higher.

Express saw operating income drop 7% to $2.6bn, on a reported basis, but ground and freight performed better than in the previous year. Cash and equivalents fell to $3.2bn from $3.9bn one year earlier.

Frederick Smith, FedEx chairman and chief executive, said: “it was a year of opportunities and challenges—anticipated and unexpected—and FedEx emerged more competitive than ever. In all my years at FedEx, I have never been so optimistic and so sure of our strategy and our ability to deliver an exciting future.”

Source: Transport Intelligence, June 21, 2018

Author: Alessandro Passeti



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