FedEx (FDX) reported earnings on Tue 18 Dec 2018 (a/h)

** charts before earnings **

 

** charts after earnings **

FedEx beats by $0.10, beats on revs; lowers FY19 EPS below consensus primarily due to European weakness; announces cost-reduction initiatives; rescinds FY20 profit target

• Reports Q2 (Nov) earnings of $4.03 per share, excluding non-recurring items, $0.10 better than the S&P Capital IQ Consensus of $3.93; revenues rose 9.3% year/year to $17.8 bln vs the $17.62 bln S&P Capital IQ Consensus. Operating income grew during the quarter due to higher volumes, increased yields and a favorable net impact of fuel at all transportation segments. Lower variable compensation also benefited results for the quarter. At FedEx Express, operating results were negatively impacted during the quarter by lower-than-expected international revenue, especially in Europe and Asia, higher growth in lower-yielding services across the network and the timing of aircraft maintenance events.
• Co issues downside guidance for FY19, sees EPS of $15.50-16.60 from $17.20-17.80, excluding non-recurring items, vs. $17.33 S&P Capital IQ Consensus. 
• These forecasts assume moderate U.S. domestic economic growth and no further weakening in international economic conditions from the current forecast. 
• Management still expects to realize the benefits from TNT Express that were anticipated when the company was acquired. However, lower-than-expected express package volume due to European economic weakness that accelerated during the quarter and is expected to continue, and a change in service mix following the June 2017 cyberattack on TNT Express, will delay the anticipated realization of these benefits. As a result, the target to increase FedEx Express operating income by $1.2 billion to $1.5 billion over fiscal 2017 results will not be achieved in fiscal 2020.
• "Global trade has slowed in recent months and leading indicators point to ongoing deceleration in global trade near-term," said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer. "These trends, coupled with the change in service mix at FedEx Express, are negatively impacting the segment's financial results. We remain committed to actively managing costs with a heightened focus on increasing efficiency across the organization." 
• In addition to lowering variable compensation, FedEx is implementing other cost-reduction initiatives to mitigate below-plan performance. These actions include: A voluntary buyout program for eligible employees International network capacity reductions at FedEx Express Limited hiring in staff functions Reductions in discretionary spending. A pre-tax cash charge related to the voluntary buyout program for U.S.-based employees is expected to total $450 million to $575 million and should predominantly occur in the fourth quarter of fiscal 2019. Actual costs will depend on employee acceptance rates. Savings from this program are expected to be $225 million to $275 million in fiscal 2020. Similar programs are being considered for employees in international regions.