FedEx Corporation :FDX-US: Earnings Analysis: Q2, 2018 By the Numbers : January 19, 2018

FedEx Corporation reports financial results for the quarter ended November 29, 2017.

Highlights

  • Summary numbers: Revenues of USD 16313 million, Net Earnings of USD 775 million.
  • Gross margins narrowed from 72.61% to 71.45% compared to the same period last year, operating (EBITDA) margins now 12.60% from 7.82%.
  • Change in operating cash flow of -45.43% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Earnings rose compared to same period last year, despite decline in operating and pretax margins.

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

2017-11-29 2017-08-30 2017-05-30 2017-02-27 2016-11-29
Relevant Numbers (Quarterly)
Revenues (mil) 16313 15297 15728 14997 14931
Revenue Growth (%YOY) 9.26 4.32 21.18 18.52 19.9
Earnings (mil) 775 596 1020 562 700
Earnings Growth (%YOY) 10.71 -16.64 1557.14 10.85 1.3
Net Margin (%) 4.75 3.9 6.49 3.75 4.69
EPS 2.85 2.19 3.76 2.07 2.59
Return on Equity (%) 4.6 3.65 6.53 3.78 4.88
Return on Assets (%) 6.22 4.87 8.56 4.83 6.09

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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 6.64% and earnings by 30.03% 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 7.82% to 12.60%. For comparison, gross margins were 72.88% and EBITDA margins were 12.32% 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 has not produced any significant offsetting improvement in its working capital . This leads Capital Cube to conclude that the decline in gross margins are likely from operating issues and not trade-offs with the balance sheet. Working capital days are currently 26.74 days, compared to last year’s level of 24.90 days.

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 -45.43% 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

Despite a decline in operating (EBIT) margins as well as a decline in pretax margins, the company’s earnings rose.

EBIT Margin History
PreTax Margin History

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Company Profile

FedEx Corporation (FedEx) provides a portfolio of transportation, e-commerce and business services through companies competing collectively, operating independently and managed collaboratively, under the FedEx brand. The Company’s segments include FedEx Express, TNT Express, FedEx Ground, FedEx Freight and FedEx Services. The FedEx Express segment offers a range of the United States domestic and international shipping services for delivery of packages and freight. TNT Express segment collects, transports and delivers documents, parcels and freight on a day-definite or time-definite basis. The FedEx Ground segment provides business and residential money-back guaranteed ground package delivery services. The FedEx Freight segment offers less-than-truckload (LTL) freight services. The FedEx Services segment provides its other companies with sales, marketing, information technology, communications, customer service and other back-office support.

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