1 FedEx Corporation First Quarter FY17 Earnings Review September 20, 2016 This presentation supplements, and should be read together with, our earnings release and statistical book for the quarter ended August 31, 2016 2 Forward-Looking Statements Certain statements in this press release 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, our ability to successfully integrate the business and operations of FedEx Express and TNT Express in the expected time frame, a significant data breach or other disruption to our technology infrastructure, changes in fuel prices or currency exchange rates, legal challenges or changes related to FedEx Ground’s owner-operators and the drivers providing services on their behalf, new U.S. domestic or international government regulation, our ability to effectively operate, integrate and leverage acquired businesses, disruptions or modifications in service by, or changes in the business of, the U.S. Postal Service, the impact from any terrorist activities or international conflicts, our ability to match capacity to shifting volume levels 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.
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Earnings Presentation Q1 FY17s1.q4cdn.com/.../Earnings-Presentation-Q1-FY17.pdf · FY16 Q1FY17 FY16 Q1FY17 Geography as % of Revenue FY16 only includes TNT revenue for May 25-31,
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This presentation supplements, and should be read together with, our earnings release and statistical book for the quarter ended August 31, 2016
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Forward-Looking StatementsCertain statements in this press release 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, our ability to successfully integrate the business and operations of FedEx Express and TNT Express in the expected time frame, a significant data breach or other disruption to our technology infrastructure, changes in fuel prices or currency exchange rates, legal challenges or changes related to FedEx Ground’s owner-operators and the drivers providing services on their behalf, new U.S. domestic or international government regulation, our ability to effectively operate, integrate and leverage acquired businesses, disruptions or modifications in service by, or changes in the business of, the U.S. Postal Service, the impact from any terrorist activities or international conflicts, our ability to match capacity to shifting volume levels 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.
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Frederick W. Smith, Chairman, President and CEO
Alan B. Graf, Jr., Executive Vice President and CFO
T. Michael Glenn, President and CEO of FedEx Services
Christine P. Richards, Executive Vice President, General Counsel & Secretary
Robert B. Carter, Executive Vice President, FedEx Information Services and CIO
David J. Bronczek, President and CEO of FedEx Express
Henry J. Maier, President and CEO of FedEx Ground
Michael L. Ducker, President and CEO of FedEx Freight
FY17 revenue and earnings to increase driven by volume growth and improved base yields at FedEx Express, FedEx Ground, and FedEx Freight
TNT Express integration proceeding smoothly
Purple Promise, “I will make every FedEx experience outstanding”
We are committed to improving FedEx Corporation’s margins, earnings per share, cash flows and returns
Strong Financial and Operating Results
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T. Michael Glenn
President and CEO
FedEx Services
Marketing Review and Outlook
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Expectation for Continued Moderate Global Growth
GDP Forecast*U.S.Global
CY2016
1.6%2.2%
CY2017
2.3%2.6%
U.S. Industrial Production* (0.7%) 2.2%
* FedEx Forecast September 2016
Corporation Economic Outlook
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Growing U.S. Domestic Package Volume,Revenue and Yield (Revenue Per Package)
Q1FY17 Q1FY16 Change
U.S. Domestic Package Revenue* $2.98B $2.90B 3%
U.S. Domestic Package Average Daily Volume 2.65M 2.62M 1%
U.S. Domestic Package Yield* $17.28 $17.03 1%
* Includes fuel surcharge
Express U.S. Domestic
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Continued Growing Demand for Economy Service
Q1FY17 Q1FY16 Change
Int’l Export Package Revenue* $2.02B $2.04B (1%)
Int’l Priority Package ADV 385K 389K (1%)
Int’l Economy Package ADV 178K 176K 1%
Int’l Export Package Yield* $55.15 $55.47 (1%)
* Includes fuel surcharge and exchange rate impact
Express International
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Strong Demand For Residential and Commercial Service
Q1FY17 Q1FY16 Change
Segment Revenue* $4.29B $3.83B 12%
FedEx Ground Average Daily Package Volume 7.39M 6.72M 10%
FedEx Ground Package Yield* $8.09 $7.91 2%
* Includes fuel surcharge
Ground Growth
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Increasing Average Daily LTL Shipments and Segment Revenue
Q1FY17 Q1FY16 Change
Segment Revenue* $1.66B $1.60B 4%
Average Daily LTL Shipments 105K 97K 8%
Weight Per LTL Shipment (lbs) 1,152 1,189 (3%)
LTL Revenue Per Shipment* $229.20 $237.81 (4%)
* Includes fuel surcharge
Freight Growth
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Business Trends:E-Commerce Growth Expected to Deliver Another Record Peak Season
E-commerce market growing at about 15%*, FedEx forecasting record peak volume
Volume projected to spread across peak period with multiple peak days
Increased investments in people, facilities, aircraft and technology will support outstanding service during peak
Close collaboration with large e-tail and retail customers that drive holiday demand
* Source: comScore
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Alan B. Graf, Jr.
Executive Vice President
and CFO
Financial Review and Outlook
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First Quarter FY2017 Results
Q1FY17 Q1FY17 Q1FY16
As Reported (GAAP)
Adjusted(non-GAAP)*
As Reported(GAAP)
Earnings Per Share $2.65 $2.90 $2.42
Operating Income $1.26B $1.36B $1.14B
Operating Margin 8.6% 9.3% 9.3%
* See the Non-GAAP Appendix for a reconciliation of presented non-GAAP measures to the most directly comparable GAAP measures
Corporation
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Double-Digit Revenue and Operating Income Growth
Q1FY17 Q1FY16 Change
Revenue $4.29B $3.83B 12%
Operating Income $610M $537M 14%
Operating Margin 14.2% 14.0% 0.2 pts
Ground Segment
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Revenue Up 4%
Q1FY17 Q1FY16 Change
Revenue $1.66B $1.60B 4%
Operating Income $135M $132M 2%
Operating Margin 8.1% 8.2% (0.1 pts)
Freight Segment
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Operating Income and Margins Improved
Q1FY17 Q1FY17 Q1FY16
As Reported (GAAP)
Adjusted(non-GAAP)*
As Reported(GAAP)
Revenue $6.66B $6.66B $6.59B
Operating Income $624M $646M $545M
YOY Change 14% 19%
Operating Margin 9.4% 9.7% 8.3%
* See the Non-GAAP Appendix for a reconciliation of presented non-GAAP measures to the most directly comparable GAAP measures
Express Segment
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New Financial Reporting Structure
+
FedEx Express Group =
SegmentSegment
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FedEx Express Group FedEx Corporation
FY16 Q1FY17 FY16 Q1FY17
Geography as % of Revenue
FY16 only includes TNT revenue for May 25-31, 2016
56%44%
U.S. International
44%56%
U.S. International
76%
24%
U.S. International
$26.5B $8.5B $50.4B $14.7B
67%
33%
U.S. International
FY16 only includes TNT revenue for May 25-31, 2016
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Global Presence
● More than 200 country and territory destinations served
● Approximately 56,000 team members with 900+ hubs, depots and office facilities
● Approximately 1 million daily packages
● European road network connecting more than 40 countries through 19 road hubs and over 540 depots
Overview of
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Strategic Rationale
● Combined companies create an even stronger global competitorwith the leading global express network in the transportation and logistics industry
● Customer access is considerably enhanced from the combined strength of TNT Express’s strong European road network for both parcel and freight and FedEx Express’s global strength
● Combined companies offer comprehensive transportation solutions, such as express, global freight forwarding, contract logistics and surface transportation capabilities
● Excellent cultural fit, both companies focused on service and people
The Acquisition of TNT
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Includes over 200 countries
● Integration process expected to take four years to complete
● Leverages our well-established integration methodology, process and tools
● Focuses on operational efficiencies, service enhancements, and optimization of back-office functions to strengthen our competitive position
● Supported by 20 integration teams including operations, IT, HR, Finance, Legal, Sales, Marketing and Customer Service
● Incorporates models to address markets where both TNT Express and FedEx Express are direct serve, one is direct serve and the other is not, and where both use third-party delivery partners
Multi-Year Integration Process
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First Full Quarter Results
Q1FY17Operating
TNT Express SegmentIncome/(Loss) Margin
Non-GAAP Measure $34M 1.9%
TNT Express Integration and Outlook Restructuring Program Costs ($20M) (1.1%)
FY17 Adjusted EPS*Excludes mark-to-market pension adjustment, TNT Express integration and Outlook restructuring program costs and TNT Express intangible asset amortization
$11.85 to $12.35
Excluding:TNT Express integration and Outlook restructuring program costs ($275M)
* See the Non-GAAP Appendix for a reconciliation of presented non-GAAP measures to the most directly comparable GAAP measures
Corp. Financial Guidance
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Achieve 10%+ operating margin
Increase EPS 10%-15% per year
Grow profitable revenue
Improve cash flows
Increase ROIC
Increase returns to shareowners
FedEx Corp. Long-Term Financial Goals
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Strategic Questions?
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Non-GAAP Appendix
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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”). In an effort to provide additional, useful information regarding the company’s financial results and other financial information, the company also discusses in its earnings press release and earnings presentation certain non-GAAP measures. The rationale for management’s use of this non-GAAP information is included in the earnings release for the quarter ended August 31, 2016. A reconciliation of any non-GAAP measure used in this earnings presentation to the most directly comparable GAAP measure is included in this Non-GAAP Appendix.
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Op Income
Op Margin
IncomeTaxes1
NetIncome2
Diluted EPS
Non-GAAP measure $1,360 9.3% $457 $780 $2.90
TNT Express integration and Outlook restructuring program costs (68) (0.5%) (23) (45) (0.17)
TNT Express intangible asset amortization
(28) (0.2%) (7) (21) (0.08)
GAAP measure $1,264 8.6% $427 $715 $2.65
Q1 FY17 Reconciliation for FedEx Corp.Dollars in millions, except EPS
1 Income taxes are based on the company’s approximate statutory tax rates applicable to each transaction 2 Does not sum to total due to rounding
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Operating
Income Margin
Non-GAAP measure $646 9.7%
TNT Express integration costs (22) (0.3%)
GAAP measure $624 9.4%
Q1 FY17 Reconciliation for FedEx Express SegmentDollars in millions
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FY17 Reconciliation for FedEx Corp. Earnings GuidanceDollars in millions, except EPS
Adjustments Diluted EPS
Earnings per diluted share with adjustments $11.85 to $12.35
TNT Express integration and Outlook restructuring program costs ($275)
Income tax effect1 92
Net of tax effect ($183) ($0.68)
TNT Express intangible asset amortization ($115)
Income tax effect1 29
Net of tax effect ($ 86) ($0.32)
Earnings per diluted share without adjustments2 $10.85 to $11.35
1 Income taxes are based on the company’s approximate statutory tax rates applicable to each transaction 2 This is a non-GAAP measure because the year-end mark-to-market pension accounting adjustments,
which are impracticable to calculate at this time, are excluded