FedEx Corporation. Forward-Looking Statements. Third Quarter FY18 Earnings Review March 20, 2018

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Transcription:

FedEx Corporation Third Quarter FY18 Earnings Review March 20, 2018 Forward-Looking Statements Certain statements in this presentation may be considered forward-looking statements, such as statements relating to management s views with respect to future events and financial performance. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from historical experience or from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, economic conditions in the global markets in which we operate, a significant data breach or other disruption to our technology infrastructure, the ongoing impact of the June 27, 2017 cyberattack affecting TNT Express, our ability to successfully integrate the businesses and operations of FedEx Express and TNT Express in the expected time frame or at the expected cost, changes in fuel prices or currency exchange rates, our ability to match capacity to shifting volume levels, new U.S. domestic or international government regulation, future guidance and interpretations relating to the recently enacted Tax Cuts and Jobs Act (TCJA) and our ability to realize the benefits of certain provisions of the TCJA, our ability to effectively operate, integrate and leverage acquired businesses, our ability to achieve our FedEx Express segment profit improvement goal, legal challenges or changes related to owner-operators engaged by FedEx Ground and the drivers providing services on their behalf, disruptions or modifications in service by, or changes in the business or financial soundness of, the U.S. Postal Service, the impact from any terrorist activities or international conflicts and other factors which can be found in FedEx Corp. s and its subsidiaries press releases and FedEx Corp. s filings with the SEC. Any forward-looking statement speaks only as of the date on which it is made. We do not undertake or assume any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. This presentation should be reviewed in conjunction with our third quarter fiscal 2018 earnings release and webcast of the earnings release conference call, which are available on the company s website at investors.fedex.com. 1

FedEx Executives on the Call Frederick W. Smith, Chairman and CEO David J. Bronczek, President and COO Alan B. Graf, Jr., EVP and CFO Mark R. Allen, EVP, General Counsel & Secretary Robert B. Carter, EVP, FedEx Information Services and CIO Donald F. Colleran, EVP, Chief Sales Officer Rajesh Subramaniam, EVP, Chief Marketing & Communications Officer David L. Cunningham, President and CEO of FedEx Express Henry J. Maier, President and CEO of FedEx Ground Michael L. Ducker, President and CEO of FedEx Freight Frederick W. Smith Chairman and CEO 2

Alan B. Graf, Jr. Executive Vice President and CFO FedEx Corporation Third Quarter FY18 Results Adjusted EPS $3.72, up 62%* primarily due to benefits from the TCJA Adjusted operating income up slightly to $1.11 billion* Higher base rates at all segments, increased volume at FedEx Ground and FedEx Freight, and favorable net impact from fuel Significantly higher variable compensation accruals, increased peak-related costs at FedEx Express, and adverse weather *See the Non-GAAP Appendix for a reconciliation of presented non- GAAP measures to the most directly comparable GAAP measures 3

FedEx Corporation Third Quarter Tax Benefits Recorded a benefit of $1.53 billion from the TCJA. This primarily includes: A provisional benefit of $1.15 billion from the remeasurement of net U.S. deferred tax liability; excluded from adjusted earnings ~$200 million from February s incremental pension contribution ~$170 million for the phase-in of the reduced tax rate on YTD earnings FedEx Express Q3 Results, Revenue Up 9% Excellent service levels during peak Estimated total net negative profit impact of ~$170 million YOY from these factors: Higher variable compensation accruals Increased peak-related costs Higher TNT Express integration expenses Adverse weather Unfavorable currency exchange rates Favorable net fuel 4

FedEx Ground Q3 Results, Operating Margin Up 110 bps to 12.1% Operating income up 23% to $634 million on 11% higher revenue Record peak volumes delivered with exceptional service Highly automated and flexible network FedEx Ground results expected to continue to improve FedEx Freight Q3 Results, Operating Income Up 34% 34% increase in operating income on 14% higher revenue Margins increased 50 bps to 3.2% Efforts to better balance volume, pricing and capacity paying off Benefiting from an improving U.S. industrial economy 5

FedEx Corporation Full-Year FY18 Guidance Diluted EPS before mark-to-market pension adjustments (non-gaap)* $17.90 to $18.30 Excluding: Net U.S. deferred tax liability remeasurement TNT Express integration expenses FedEx Trade Networks legal matters ($4.21) $1.29 $0.02 Diluted EPS with adjustments (non-gaap)* $15.00 to $15.40 *See the Non-GAAP Appendix for a reconciliation of presented non-gaap measures to the most directly comparable GAAP measures FedEx Corporation Additional Financial Guidance Q4 Adjusted Operating Margin Projected to be 11.0% to 11.8%* Q4 FY18 Projected Operating Margin* As Reported (GAAP) Adjusted (Non-GAAP)* FedEx Express segment 9.1% to 9.6% 9.9% to 10.4% FedEx Ground segment 17.0% to 17.5% N/A FedEx Freight segment 8.0% to 9.0% N/A We remain committed to our target of $1.2 to $1.5 billion in additional operating profit for the FedEx Express segment in FY20 versus FY17, assuming moderate economic growth and current accounting rules and tax laws Forecasts reflect the March 1, 2018 realignment of the company s specialty logistics and e-commerce solutions into a new organizational structure within the FedEx Express segment. *See the Non-GAAP Appendix for a reconciliation of presented non-gaap measures to the most directly comparable GAAP measures 6

FedEx Corporation Full-Year FY18 Capital Expenditure Guidance FY18 capex forecast now $5.8 billion, down $100 million Optimizing capex to capture benefits of 100% expensing to further grow and improve the business Multi-year investments in Express hub modernization: Indianapolis - expected to cost $1.5 billion Memphis - estimated to exceed $1.0 billion Accelerating delivery of one 777F aircraft to FY19 and three to FY20 FedEx Corporation Tax Rate Guidance Effective Tax Rates (ETR)* FY18 Adjusted ETR expected to be 20% to 21% FY19 Estimated ETR expected to be 25% to 26% *Assumes no material impacts from future TCJA guidance or interpretation and does not include any impact from items excluded from our FY18 adjusted EPS forecast. The FY19 ETR forecast excludes any impact from MTM pension accounting adjustments. See the Non-GAAP Appendix for a reconciliation of presented non-gaap measures to the most directly comparable GAAP measures. 7

Rajesh Subramaniam Executive Vice President, Chief Marketing and Communications Officer Economic Outlook Expectation for Broad-Based Growth in Global Economy CY16 CY17 CY18 GDP Forecast* U.S. 1.5% 2.3% 3.0% Global 2.4% 3.1% 3.2% U.S. Growth* Industrial Production (1.2%) 2.0% 3.4% Consumer Spending 2.7% 2.7% 2.8% * FedEx Forecast March 1, 2018 8

FedEx Express U.S. Domestic Growing U.S. Domestic Package Revenue and Yield (Revenue Per Package) Q3 FY18 Q3 FY17 Change U.S. Domestic Package Revenue* $3.27B $3.12B 5% U.S. Domestic Package ADV 2.88M 2.90M _ U.S. Domestic Package Yield* $18.29 $17.36 5% * Includes fuel surcharges FedEx Express International Export Double Digit Growth for International Services Revenue Q3 FY18 Q3 FY17 Change International Export Package Revenue* International Export Package ADV International Export Package Yield* $2.61B $2.36B 10% 795K 788K 1% $52.83 $48.27 9% * Includes fuel surcharges and exchange rate impact 9

FedEx Ground Strong Performance in Ground Segment Q3 FY18 Q3 FY17 Change Segment Revenue* $5.22B $4.69B 11% FedEx Ground Package ADV FedEx Ground Package Yield* 8.99M 8.52M 6% $8.64 $8.12 6% * Includes fuel surcharges FedEx Freight Balanced Growth of Revenue Per Shipment and Volume Q3 FY18 Q3 FY17 Change Segment Revenue* $1.69B $1.49B 14% Average Daily LTL Shipments Weight per LTL Shipment (lbs) LTL Revenue Per Shipment* 100K 95K 6% 1,202 1,172 3% $259.20 $239.82 8% * Includes fuel surcharges 10

Continued Innovation Drives Value Anticipate adding FedEx Office locations in 500 Walmart stores within two years FedEx Returns Technology to enable e-tailers Over 10,000 FedEx hold locations David J. Bronczek President and Chief Operating Officer 11

FedEx Ground Operations Update Double-digit growth in revenue and operating income Matching capacity expansion with pricing and volume growth FedEx Express Operations Update Revenue growth driven by international business Underlying fundamentals remain strong 12

TNT Express Integration Update Strong service levels Accelerating integration Significant investments in TNT information security FedEx Freight Operations Update Improvements in revenue and profitability continue Expect FY18 to be one of the best years in a decade 13

If you would like to send a question for the call, please include your full name and contact information with your email to ir@fedex.com Preference will be given to inquiries of a long-term, strategic nature. Non-GAAP Appendix 14

Explanatory Note on Non-GAAP Financial Measures The company reports its financial results in accordance with accounting principles generally accepted in the United States ( GAAP ). We have supplemented the reporting of our financial information determined in accordance with GAAP with certain non-gaap (or adjusted ) financial measures. The rationale for management s use of these non-gaap financial measures is included in the earnings release for the quarter ended February 28, 2018. Reconciliations of certain non-gaap measures used in this earnings presentation to the most directly comparable GAAP measures are included in this Non-GAAP Appendix. Q3 FY18 Reconciliation for FedEx Corp. Dollars in millions, except EPS Operating Income Operating Margin Income Taxes 1 Net Income 2 Diluted EPS GAAP measure $1,001 6.1% ($1,200) $2,074 $7.59 Net U.S. deferred tax liability remeasurement - - 1,150 (1,150) (4.21) TNT Express integration expenses 3 106 0.6% 14 92 0.34 Non-GAAP measure $1,107 6.7% ($36) $1,016 $3.72 1,2,3 See Footnotes for FedEx Corp. Non-GAAP Reconciliation Slides below for details. 15

Q3 FY18 Reconciliation for FedEx Express Segment Dollars in millions Operating Income Margin GAAP measure $424 4.5% TNT Express integration expenses 86 0.9% Non-GAAP measure $510 5.4% Q3 FY17 Reconciliation for FedEx Corp. Dollars in millions, except EPS Operating Income Operating Margin Income Taxes 1 Net Income 2 Diluted EPS GAAP measure $1,025 6.8% $337 $562 $2.07 TNT Express integration expenses 3 78 0.6% 15 63 0.23 Non-GAAP measure $1,103 7.4% $352 $625 $2.30 1,2,3 See Footnotes for FedEx Corp. Non-GAAP Reconciliation Slides below for details. 16

Q3 FY17 Reconciliation for FedEx Express Segment Dollars in millions Operating Income Margin GAAP measure $557 6.5% TNT Express integration expenses 53 0.6% Non-GAAP measure $610 7.1% FedEx Corporation Full-Year FY18 Guidance Dollars in millions, except EPS Adjustments Diluted EPS Diluted EPS before mark-to-market pension accounting adjustments (non-gaap) 4 $17.90 to $18.30 Net U.S. deferred tax liability remeasurement 1 ($1,150) (4.21) TNT Express integration expenses Income tax effect 1 Net of tax effect FedEx Trade Networks legal matters Income tax effect 1 Net of tax effect $ 450 (100) $ 350 1.29 $ 7 (2) $ 5 0.02 Diluted EPS with adjustments (non-gaap) 4 $15.00 to $15.40 1,4 See Footnotes for FedEx Corp. Non-GAAP Reconciliation Slides below for details. 17

Q4 FY18 Outlook Reconciliation for FedEx Corp. Dollars in millions Operating Income Margin Operating results before mark-to-market pension accounting adjustments (non-gaap) 4 $1,840 to $1,940 10.4% to 11.1% TNT Express integration expenses 3 110 0.6% to 0.7% Operating results excluding TNT Express integration expenses (non-gaap) 4 $1,950 to $2,050 11.0% to 11.8% 3,4 See Footnotes for FedEx Corp. Non-GAAP Reconciliation Slides below for details. Q4 FY18 Outlook Reconciliation for FedEx Express Segment Operating Margin GAAP measure 9.1% to 9.6% TNT Express integration expenses 0.8% Non-GAAP measure 9.9% to 10.4% 18

FedEx Corporation FY18 Adjusted Effective Tax Rate Projection ETR Projection Effective tax rate before MTM pension accounting (5%) to (3%) adjustments (non-gaap) 5 Net U.S. deferred tax liability remeasurement 21% to 23% TNT Express integration expenses 2% to 2.5% FedEx Trade Networks legal matters 0% to 0.1% Effective tax rate with adjustments (non-gaap) 5,6 20% to 21% Footnotes for FedEx Corp. Non-GAAP Reconciliation Slides 1. Income taxes are based on the company s approximate statutory tax rates, and for fiscal 2018, give consideration to the effects of the TCJA on the fiscal 2018 rates. 2. Effect of Total other (expense) income on net income amount not shown. 3. These expenses are recognized at FedEx Corporate and FedEx Express. 4. The fiscal 2018 year-end MTM pension accounting adjustments, which are impracticable to calculate at this time, are excluded. 5. The fiscal 2018 year-end MTM pension accounting adjustments, which are impracticable to calculate at this time, are excluded. For this reason, a full reconciliation of our fiscal 2018 adjusted effective tax rate projection to the most directly comparable GAAP measure is impracticable. Additionally, our fiscal 2019 effective tax rate projection is a non-gaap financial measure because it excludes the fiscal 2019 year-end MTM pension accounting adjustments, which are impracticable to calculate at this time. 6. The individual range projections presented above do not aggregate in total to this range projection because each individual range projection was independently estimated using a range of tax impacts and income forecasts. 19