FedEx Corp. :FDX-US: Earnings Analysis: Q4, 2017 By the Numbers : July 19, 2017

FedEx Corp. reports financial results for the quarter ended May 31, 2017.

Highlights

  • Summary numbers: Revenues of USD 15728 million, Net Earnings of USD 1019 million.
  • Gross margins narrowed from 25.29% to 24.77% compared to the same period last year, operating (EBITDA) margins now 16.02% from -6.23%.
  • Change in operating cash flow of 19.51% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-05-31 2017-02-28 2016-11-30 2016-08-31 2016-05-31
Relevant Numbers (Quarterly)
Revenues (mil) 15728 14997 14931 14663 12979
Revenue Growth (%YOY) 21.18 18.52 19.9 19.42 7.14
Earnings (mil) 1019 561 700 714 -70
Earnings Growth (%YOY) 1555.71 10.87 1.45 3.33 90.68
Net Margin (%) 6.48 3.74 4.69 4.87 -0.54
EPS 3.76 2.07 2.59 2.65 -0.26
Return on Equity (%) 6.52 3.78 4.88 5.11 -0.5
Return on Assets (%) 8.55 4.82 6.09 6.23 -0.67

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, FDX-US‘s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if FDX-US‘s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by 4.87% and earnings by 81.64% compared to the previous period.

Earnings Growth Analysis

The company’s gross margins showed no year-on-year improvement. In spite of this, the company’s earnings rose, influenced primarily by the improvement in operating margins (EBITDA margins) from -6.23% to 16.02%. For comparison, gross margins were 21.24% and EBITDA margins were 12.44% in the last period.

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

FDX-US‘s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days have fallen to 26.61 days from 29.02 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

FDX-US‘s year-on-year change in operating cash flow of 19.51% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from -11.37% to 11.23% and (2) one-time items. The company’s pretax margins are now 9.28% compared to -1.39% for the same period last year.

EBIT Margin History
PreTax Margin History

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Company Profile

FedEx Corp. engages in the provision of a portfolio of transportation, e-commerce, and business services. It operates through the following business segments: FedEx Express, TNT Express, FedEx Ground, FedEx Freight, and FedEx Services. The FedEx Express segment focuses on time-definite delivery across countries and territories. The TNT Express deals with international small-package ground delivery and freight transportation. The FedEx Ground segment engages in the provision of small-package ground delivery services to any business address in the United States and Canada. The FedEx Freight segment includes the provision of less-than-truckload freight services across all lengths of haul. The FedEx Services segment focuses on the provision of sales, marketing, information technology, communications, and back-office support to other companies in the FedEx Group. The company was founded by Frederick Wallace Smith on June 18, 1971 and is headquartered in Memphis, TN.

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