OREANDA-NEWS. FedEx Corp. today reported adjusted earnings of $2.51 per diluted share for the third quarter ended February 29, compared to adjusted earnings of $2.03 per diluted share a year ago. Without adjustments, FedEx reported earnings of $1.84 for the third quarter compared to $2.18 per diluted share last year.

This year’s quarterly consolidated earnings have been adjusted for expenses related to certain legal matters ($0.61 per diluted share) and the pending acquisition of TNT Express ($0.06 per diluted share).

“Our strong financial performance was driven by increasing demand for our broad portfolio of FedEx business solutions which helped increase revenue and adjusted profit for the corporation,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer. “We sincerely appreciate the peak season efforts of our FedEx team members who delivered great service despite the challenges of stronger-than-expected shipping demand, driven by the growth in e-commerce.”

Outlook

FedEx is tightening its adjusted earnings forecast to $10.70 to $10.90 per diluted share for fiscal 2016 before year-end mark-to-market pension accounting adjustments (“MTM adjustments”), compared to the previous forecast of $10.40 to $10.90 per diluted share. The outlook assumes moderate economic growth and excludes certain legal matters as well as any TNT-related costs or operating results. The capital spending forecast for the fiscal year is now $4.8 billion.

“We now expect our fiscal 2016 adjusted earnings to be up 20% to 22% over last year, as we continue to benefit from our execution of the profit improvement program,” said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer. “Our positive financial momentum should continue into our upcoming fiscal 2017, where we expect solid growth in earnings and cash flow.”

FedEx Express Segment

For the third quarter, the FedEx Express segment reported:

  • Revenue of $6.56 billion, down 1% from last year’s $6.66 billion
  • Operating income of $595 million, up 51% from $393 million a year ago
  • Operating margin of 9.1%, up from 5.9% the previous year

Revenue decreased slightly as lower fuel surcharges and unfavorable currency exchange rates offset improved yield management and a 2% increase in U.S. domestic volume.

Operating results improved due to yield management efforts and U.S. domestic volume growth as well as the ongoing benefits from profit improvement program initiatives, which continued to improve revenue quality and constrain expense growth. Fuel and currency exchange rate changes had a positive net impact on the quarter.

FedEx Ground Segment

For the third quarter, the FedEx Ground segment reported:

  • Revenue of $4.41 billion, up 30% from last year’s $3.39 billion
  • Operating income of $557 million, down from $559 million a year ago
  • Operating margin of 12.6%, down from 16.5% the previous year

Revenue increased due to an 11% increase in FedEx Ground volume, improved yield management, the recording of FedEx SmartPost revenues on a gross basis versus the previous net treatment and the inclusion of GENCO results for the entire quarter versus one month in the prior year’s results.

Operating results were negatively impacted by higher costs, driven significantly by network expansion and by peak season demand that exceeded both volume and package size expectations. Increased self-insurance expense and higher purchased transportation rates also negatively impacted the quarter. The change in FedEx SmartPost revenue reporting and the inclusion of GENCO results collectively reduced the operating margin year-over-year by 1.9 percentage points.

FedEx Ground has reached agreements in principle to settle all of the 19 cases on appeal in the multidistrict independent contractor litigation. The multidistrict court had found the owner-operators in these cases to be contractors as a matter of law, and the disputes involve a contractor model which FedEx Ground has not operated since 2011. In the third quarter, we recognized a liability at Corporate for the net expected loss of $204 million for these settlements and other contractor-related proceedings. The settlements will require court approval.

FedEx Freight Segment

For the third quarter, the FedEx Freight segment reported:

  • Revenue of $1.45 billion, up 1% from last year’s $1.43 billion
  • Operating income of $56 million, down 16% from $67 million a year ago
  • Operating margin of 3.9%, down from 4.7% the previous year

Revenue increased as less-than-truckload (LTL) average daily shipments increased 7%, mostly offset by lower fuel surcharges and weight per shipment.