FedEx operating income down 8.8% year-on-year in its Q1 2020

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FedEx has released financial results for its Q1 2020. Reported revenues totalled $17,048m (2019: $17,052m), down 0.02% year-on-year, with net revenue totalling $745m. Q1 2020 reported operating income totalled $977m (2019: 1,071m), down 8.8% year-on-year and resulting in a 5.7% reported margin.

According to FedEx, operating results declined primarily due to weakening global economic conditions, increased costs to expand service offerings and continued mix shift to lower-yielding services. The impact of one fewer operating day and the loss of business from a large customer also negatively impacted result. These factors were partially offset by lower variable incentive compensation expenses, revenue growth at FedEx Ground and increased yields at FedEx Freight.

FedEx Express business segment Q1 2020 revenues totalled $8,945m, down 3% year-on-year (2019: 9,222m), while its operating income was $285m, down 26.5% year-on-year (2019: $388m).

Revenues in FedEx Ground segment totalled $5,179m, up 8% year-on-year (2019: $4,799m), with operating income totalling $644m, down 5% year-on-year (2019: $676m­).

FedEx Freight segment revenues totalled $1,905m, down 3% year-on-year (2019: 1,959m), and operating income was $194m, up 10.2% year-on-year (2019: $176m).

“Our performance continues to be negatively impacted by a weakening global macro environment driven by increasing trade tensions and policy uncertainty,” said Frederick W. Smith, FedEx Corp. chairman and chief executive officer. “Despite these challenges, we are positioning FedEx to leverage future growth opportunities as we continue the integration of TNT Express, enhance FedEx Ground residential delivery capabilities and modernize the FedEx Express air fleet and hub operations.”

“FedEx is implementing additional cost-reduction initiatives to mitigate the effects of macroeconomic uncertainty, including post-peak reductions to the global FedEx Express air network to better match capacity with demand,” said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer. “However, we are continuing to make strategic investments to improve our capabilities and efficiency, which we expect will drive long-term increases in earnings, margins, cash flows and returns.”

These forecasts assume moderate U.S. economic growth, the company’s current fuel price expectations, no further weakening in international economic conditions from the company’s current forecast and no additional adverse developments in international trade policies and relations.

The company confirmed that Q1 2020 and Q1 2019 consolidated results have been adjusted for TNT Express integration expenses of $71m for 2020 and $121m for 2019. FedEx expects that it will incur into further significant expenses in FY 2021 due to the integration of TNT Express.

Source: FedEx