Growing trade tensions impact FedEx in Q3

posted on 20th March 2019 by Justin Burns

FedEx Corp. has reported results below “expectation” in the third quarter (Q3) ending 28 February as net income fell from Q3 in 2018 as growing global trade tensions and the integration of TNT weighed down performance.

Adjusted net income reached US$797 million, a near 25 per cent decline on the $1.02 billion in the last fiscal year. Adjusted revenue did nudge up in the quarter to $17 billion from 16.5 billion.

This year’s quarterly consolidated results have been adjusted to exclude TNT Express integration expenses and business realignment costs where as last year it excluded any additional costs, FedEx said.

“Our third quarter financial results were below our expectations and we are focused on initiatives to improve our performance,” said FedEx Corp. chairman and chief executive officer, Frederick W. Smith.

“Our investments in innovation, network infrastructure and automation will increase our competitiveness and drive long-term earnings growth. FedEx built and operates the preeminent global parcel and logistics network, and we have a lengthy track record of success.”

In Q3, the express operator said FedEx Express international revenue declined as a result of lower yields and unfavorable exchange rates. FedEx Express international and US yields were down due primarily to higher growth in lower-yielding services and lower weight per shipment.

FedEx Corp. executive vice president and chief financial officer, Alan Graf said slowing international macroeconomic conditions and weaker global trade growth trends continue, as seen in the year-over-year decline in FedEx Express international revenue.

FedEx continues to integrate FedEx Express and TNT Express operations. In February, FedEx Express began to integrate its intra-European shipments into the TNT Express European road network. With this development, FedEx Express customers in Europe will on average see at least one business day of transit time improvement on 40 per cent of all European lanes, with the full implementation expected in June, the company said.

Europe accounts for a significant percentage of the combined FedEx Express and TNT Express international revenue, workforce and facilities. FedEx said integration activities in Europe are “complex” and require consultations with works councils and employee representatives in a number of countries.

While substantial progress on integration activities is expected to occur in fiscal 2020, particularly in Europe, integration work will continue into fiscal 2021.

Integration expenses are expected to exceed $1.5 billion cumulatively through fiscal 2021 and additional costs may be incurred related to investments that will further transform and optimize the FedEx Express business.

“We are focused on offering innovative e-commerce solutions, increasing our revenue quality, reducing our cost to serve and completing the integration of TNT Express,” said FedEx Corp. president and chief operating officer, Rajesh Subramaniam.

“We remain confident in the long-term strategic value of the FedEx Express/TNT Express combination and look forward to realizing the synergies from a single pickup-and-delivery network, single air and road network, back-office efficiencies and sustained revenue growth.”