FedEx hails ‘herculean efforts’ of team members
FedEx Corp. has reported its results for the fourth quarter ended May 31. Adjusted profit fell by almost 50% to $663 million and revenue fell slightly to $17.4 billion compared to $17.8 billion in 2019.
“Though our fiscal fourth quarter performance was severely affected by the COVID-19 pandemic, I am extremely proud of the herculean efforts of our team members,” said Frederick W. Smith, FedEx Corp. chairman and CEO. “With safety as the first priority, these men and women provided essential transportation of critical supplies across the globe and delivered peak-level e-commerce volumes in the United States. As a result of the strategic investments we have made to enhance our capabilities and efficiencies, FedEx is well positioned to support and benefit from the reopening of the global economy.”
Virtually all revenue and expense line items were affected by the COVID-19 pandemic 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. The company also incurred an approximate $125 million 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 favorable net impact of fuel and lower variable incentive compensation expenses.
Fourth quarter results include goodwill and other asset impairments of approximately $370 million, 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 noncash mark-to-market (MTM) retirement plan accounting adjustment of a net $794 million 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 due to a change in deferred tax balances related to foreign operations.
FedEx is not providing an earnings forecast for fiscal 2021 as the timing and pace of an economic recovery are uncertain.
FedEx will continue to manage network capacity, making adjustments as needed to align with volumes and operating conditions. FedEx will also remain focused on last-mile optimization, including the continued rollout of the FedEx Express initiative to utilize FedEx Ground for the transport and delivery of select day-definite FedEx Express residential packages within the U.S. FedEx Ground will complete the integration of FedEx SmartPost packages into standard FedEx Ground operations by peak season.
TNT Express integration expenses are estimated to total approximately $1.7 billion through the completion of the physical network integration in fiscal 2022, of which $175 million is expected to be incurred this fiscal year.
Capital expenditures for fiscal 2021 are targeted to be approximately $4.9 billion, a $1 billion 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 U.S. domestic pension plans during fiscal 2021, following voluntary contributions of $1 billion 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 Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer. “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 U.S. residential capabilities, our yield management efforts and multiple initiatives to improve our financial performance.”