FedEx Q3 results driven by robust volumes in priority services and pricing initiatives
FedEx Corp. reported better than expected results for the third quarter primarily due to strong volume growth in US domestic residential package and FedEx International Priority services and pricing initiatives across all transportation segments. These factors were partially offset by costs to support strong demand and expand services, variable compensation expense, higher labor rates, and one fewer operating weekday.
Severe winter weather during February reduced the quarter’s operating income by an estimated $350 million. The weather significantly impaired operations at several of the company’s largest facilities, including the primary FedEx Express hub in Memphis and FedEx Express hubs in Indianapolis and North Texas.
Net income includes tax benefits of $108 million ($0.40 per diluted share) from a tax rate increase in the Netherlands applied to deferred tax balances and associated with voluntary contributions to the company’s pension plans.
“I’m exceedingly proud of our FedEx team members, who are moving the world forward through the delivery of Covid-19 vaccines — the most important work in the history of FedEx,” said Frederick W. Smith, FedEx Corp. chairman and chief executive officer. “As reflected in this quarter’s results, continued execution of our strategies is producing strong earnings growth and margin improvement across our company. We expect demand for our unmatched e-commerce and international express solutions to remain very high for the foreseeable future.”
In terms of its outlook for the year ahead, FedEx is unable to forecast the fiscal 2021 year-end mark-to-market (MTM) retirement plan accounting adjustment and certain debt refinancing costs that may be incurred in connection with debt reduction and refinancing transactions as part of the company’s capital allocation strategy. As a result, FedEx is unable to provide a fiscal 2021 earnings per share or effective tax rate (ETR) outlook on a GAAP basis.
“The significant improvement in our third quarter results highlights the momentum in our business which continued through an unprecedented peak season,” said Michael C. Lenz, FedEx Corp. executive vice president and chief financial officer. “Our growth in fiscal 2021 has identified opportunities for investments that further position us for sustained long-term growth in earnings and cash flows as we move into fiscal 2022 and beyond.”
For fiscal 2021, FedEx is forecasting earnings of $16.80 to $17.40 per diluted share before the year-end MTM retirement plan accounting adjustment and debt refinancing costs that may be incurred;
Earnings of $17.60 to $18.20 per diluted share before (i) the year-end MTM retirement plan accounting adjustment and (ii) debt refinancing costs that may be incurred and excluding (iii) TNT Express integration expenses; (iv) costs associated with business realignment activities; and (v) the second quarter fiscal 2021 MTM TNT Express retirement plan accounting adjustment;
ETR of 21% to 22% prior to the year-end MTM retirement plan accounting adjustment; and capital spending of $5.7 billion, an increase from the prior forecast due to changes in the timing of aircraft payments and the acceleration of FedEx Ground capacity expansion initiatives.
These forecasts assume continued recovery in the US industrial production and global trade, no additional Covid-19-related business restrictions and current fuel price expectations. FedEx’s ETR and earnings per share forecasts are based on current law and related regulations and guidance.