FedEx releases Covid-19 and earnings update

Frederick Smith, FedEx Corporation Chairman and CEO, is proud of the herculean efforts of FedEx team members who provided essential transportation worldwide and delivered peak-level volumes in the US.

His comments follow a review of 2019 Q4 performance which was impacted by the Covid-19 pandemic.

According to consolidated results for the fourth quarter ended 31 May, adjusted revenue was $17.4 billion USD (FY2019: $17.8 billion USD), adjusted operating income was $475 million USD (FY2019: $1.72 billion USD) and an adjusted net (loss) income of $663 million USD (FY2019: $1.32 billion USD).

Smith said FedEx is well positioned to support and benefit from the reopening of the global economy as a result of strategic investments in enhance capabilities and efficiencies.

Covid-19 affected all revenue and expense line items during the quarter.

“While commercial volumes were down significantly due to business closures across the globe, there were surges in residential deliveries at FedEx Ground and in transpacific and charter flights at FedEx Express, which required incremental costs to serve,” FedEx said in a statement.

“The company also incurred an approximate $125 million [USD] increase in operating costs related to personal protective equipment and medical/safety supplies, as well as additional security and cleaning services to protect our team members and ensure we are safely providing essential services for our customers.

“Additionally, operating results were negatively affected by one fewer operating weekday, increased costs to expand services, higher bad debt expense, increased self-insurance accruals and the loss of business from a large customer. These factors were partially offset by the strong residential delivery volume growth at FedEx Ground, increased revenue per shipment at FedEx Freight, a favourable net impact of fuel and lower variable incentive compensation expenses.

“Fourth quarter results include goodwill and other asset impairments of approximately $370 million [USD], primarily related to goodwill impairment at FedEx Office. The Covid-19 pandemic resulted in temporary store closures and declining print revenue at FedEx Office during the fourth quarter and is expected to continue to negatively impact its near-term operating performance. The quarter’s results also include a pre-tax non-cash mark-to-market (MTM) retirement plan accounting adjustment of a net $794 million [USD] loss. The negative impact from a 64 basis point decrease in the discount rate more than offset the benefit from stronger than expected asset returns.

“Net income includes a tax benefit of $71 million related to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provision which allows tax losses to be offset against income from prior years that was taxed at higher rates. This benefit was mostly offset by a non-cash tax expense of $51 million [USD] due to a change in deferred tax balances related to foreign operations.”

FedEx has also reported consolidated results for the FY2020.

Adjusted revenue was $69.2 billion USD (FY2019: $69.7 billion USD), adjusted operating income was $3.12 billion USD (FY2019: $5.22 billion USD) and an adjusted net income of $2.49 billion USD (FY2019: $4.13 billion USD).

FedEx said it will continue to manage network capacity, making adjustments as needed to align with volumes and operating conditions.

The company will also remain focused on last-mile optimisation, including the continued rollout of the FedEx Express initiative to utilise FedEx Ground for the transport and delivery of select day-definite FedEx Express residential packages within the US FedEx Ground will complete the integration of FedEx SmartPost packages into standard FedEx Ground operations by peak season.

TNT Express integration expenses are reportedly estimated to total approximately $1.7 billion USD through the completion of the physical network integration in fiscal 2022, of which $175 million USD is expected to be incurred this fiscal year.

Capital expenditures for fiscal 2021 are targeted to be approximately $4.9 billion USD, a $1 billion USD year-over-year decline, due primarily to reduced vehicle replacement spending and delayed facility investments.

The company does not anticipate making contributions to its tax-qualified US domestic pension plans during fiscal 2021, following voluntary contributions of $1 billion USD during each of the last two fiscal years.

“We have reduced our planned capital spending where possible and have taken actions to mitigate the impact of the pandemic,” said FedEx Executive President and Chief Financial Officer, Alan Graf.

“While the near-term outlook is unclear, we expect to benefit from the global recovery as we leverage the strength of our unmatched air network and US residential capabilities, our yield management efforts and multiple initiatives to improve our financial performance,” he said.

In other news, FedEx backs a North American trade agreement.

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