FedEx's Q3 earnings exceeded expectations, driven by strategic execution and resilience amidst a dynamic global environment.
Key Takeaways
FedEx Corp. reported higher third quarter earnings with operating income of $1.33 billion, up 32% year over year, and $1.46 billion on an adjusted basis. The improved results were partially offset by the effects of the Omicron variant, as well as higher purchased transportation costs and wage rates.
Operating income improved due to higher revenue per shipment and a net fuel benefit at all transportation segments.
The quarter's results also benefited from lower variable compensation expense and less severe winter weather.
FedEx Freight's operating income nearly tripled, driven by a continued focus on revenue quality and profitable growth.
The company successfully executed during the holiday peak season, resulting in record December operating income.
FedEx expects earnings per diluted share of $18.60 to $19.60 before the year-end MTM retirement plans accounting adjustment. Earnings per diluted share of $20.50 to $21.50 before (i) the year-end MTM retirement plans accounting adjustment, and excluding (ii) estimated TNT Express integration expenses, (iii) estimated costs associated with business realignment activities, and (iv) the second quarter fiscal 2022 MTM retirement plans accounting adjustments, unchanged from the prior forecast.
Positive Outlook
Continued growth in U.S. industrial production and global trade
A continued gradual improvement in labor availability
No new COVID-19 related business restrictions
Current fuel price expectations
No additional adverse geopolitical developments
Challenges Ahead
The company is unable to forecast the year-end fiscal 2022 mark-to-market (MTM) retirement plans accounting adjustment.
FedEx is unable to provide a fiscal 2022 earnings per share or effective tax rate (ETR) outlook on a GAAP basis.
Historical Earnings Impact
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These forecasts assume continued growth in U.S. industrial production and global trade, a continued gradual improvement in labor availability, no new COVID-19 related business restrictions, current fuel price expectations and no additional adverse geopolitical developments.
FedEx’s ETR and earnings per share forecasts are based on current law and related regulations and guidance.
Potential risks and uncertainties include, but are not limited to, economic conditions in the global markets in which we operate; our ability to meet our labor and purchased transportation needs while controlling related costs; a significant data breach or other disruption to our technology infrastructure; the continuing effect of the COVID-19 pandemic; anti-trade measures and additional changes in international trade policies and relations; the effect of any international conflicts or terrorist activities, including as a result of the current conflict between Russia and Ukraine; our ability to successfully implement our business strategy, effectively respond to changes in market dynamics and achieve the anticipated benefits and associated cost savings of such strategies and actions, including our ability to successfully implement our FedEx Express workforce reduction plan in Europe and to continue to transform and optimize the FedEx Express international business, particularly in Europe; damage to our reputation or loss of brand equity; changes in the business or financial soundness of the U.S. Postal Service, including strategic changes to its operations to reduce its reliance on the air network of FedEx Express; changes in fuel prices or currency exchange rates, including significant increases in fuel prices as a result of the ongoing conflict between Russia and Ukraine; our ability to match capacity to shifting volume levels; the effect of intense competition; our ability to effectively operate, integrate, leverage and grow acquired businesses and realize the anticipated benefits of acquisitions and other strategic transactions; the future rate of e-commerce growth and our ability to successfully expand our e-commerce services portfolio; the timeline for recovery of passenger airline cargo capacity; evolving or new U.S. domestic or international laws and government regulations, policies and actions; future guidance, regulations, interpretations, challenges or judicial decisions related to our tax positions; legal challenges or changes related to service providers engaged by FedEx Ground and the drivers providing services on their behalf; an increase in self-insurance accruals and expenses; our ability to quickly and effectively restore operations following adverse weather or a localized disaster or disturbance in a key geography; our ability to achieve our goal of carbon-neutral operations by 2040; and other factors which can be found in FedEx Corp.’s and its subsidiaries’ press releases and FedEx Corp.’s filings with the SEC.
