The headline numbers released by FedEx this week for fiscal 2019 confirmed that margins remained under pressure as growth rates became significantly harder to manage in the twelve months ended 31 May, while capital expenditures (capex) fell.
Record annual revenues came in at $69.7bn, both on a reported and adjusted basis, up 6.4% annually, but operating income (EBIT) was flattish, with adjusted EBIT margin and reported EBIT margin down, respectively, 10 basis points and 30 basis points to 6.4% and 7.5%.
While reported EBIT was $4.4bn, adjusted non-GAAP EBIT came in at $5.22bn – both were only marginally higher on a comparable basis.
Operating expenses outpaced the growth of revenues by about 50 basis points, with Ground and Freight its fastest-growing segments, in terms of sales (+12% and +11%, respectively), well ahead of Services (+2%) and Express (+3%), although the latter represented the majority of group revenues.
However, while Ground and Express profits growth lagged revenue growth, EBIT in its Freight business was strong, up 26% for the year.
Its earnings per share plummeted on a reported basis due to one-offs, mainly due to a $3.8bn retirement plan mark-to-market adjustment. This is typically a non-cash item, so it did not impact operating cash flows, which rose by almost $1bn to $5.6bn in fiscal 2019.
On a non-GAAP basis, one-off adjustments were not taken into account, leading to mildly higher diluted earnings per share.
Capex for fiscal 2019 was $5.5bn (2018: $5.66bn), while its projected capital spending budget for 2020 stands at $5.9bn. The company repurchased 6.6m shares, spending about $1.5bn, while cash outlays from dividends were $683m, versus $535m one year earlier.
“Fiscal 2019 was a year of both challenge and change for FedEx,” said chief executive Fred Smith.
“FedEx enters fiscal 2020 with a sharp focus on extending our lead as the premier global transportation and logistics company and on making the necessary investments today to capture the significant market opportunities we see for the future,” he added.
“These actions include enhancing FedEx Ground capabilities, speed and efficiency; improving FedEx Express hub automation; modernising our FedEx Express air fleet; integrating TNT Express; and reducing unit costs and increasing productivity,” he concluded.
In fiscal 2020, operating income at Ground and Freight is expected to rise on the back of “higher revenues”. However, as far as its core Express operations are concerned, FedEx admitted that macroeconomic weakness and trade uncertainty, a continued mix shift to lower-yielding services and a strategic decision to not renew a customer contract (it didn’t specify, but it’s Amazon) will negatively impact operating income.
Finally, it was unable to forecast the fiscal 2020 year-end MTM retirement plan accounting adjustment, so it did not provide a fiscal 2020 earnings per share or effective tax rate (ETR) outlook on a GAAP basis.
Source: Transport Intelligence, June 27, 2019
Author: Alessandro Pasetti
