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Recovered from Cyberattack, FedEx Express Takes Off

An impressive quarterly earnings report from FedEx for the period ending November 30. Cost cutting and disciplined rate management resulted in positive gains across the company’s major divisions. Overall, revenue (as reported) increased 9.4% to $16.3 billion, operating income climbed 7.7% to $1.26 billion and net income was up 10.7% to $775 million.

Results from the largest division, Express, were highly anticipated due to the June cyberattack of the former TNT business. The attack impacted Express about $100 million. Despite this, the division reported revenue up 8.2% to $9.35 billion and operating income gains of 1.6% to $717 million.

Integration of TNT into the Express division continues and as noted on the earnings call, the company is increasing investment to expedite the process. Originally, costs were expected to be about $800 million but have now climbed to around $1.4 billion.

Express benefited from higher rates. For example, its U.S. Express Domestic Package revenue increased 6% while average daily volumes gained only 1%. Meanwhile, International Export Package Revenue was up 7% with average daily volume increasing 3%.

Meanwhile, international investments continued for the group. During the quarter Express opened a new ground operations center in Barcelona. The facility will process both domestic and international shipments, serving as a gateway between the Barcelona region and Europe.

In late September, FedEx signed an agreement with Incheon International Airport Corporation to build a new FedEx Cargo Terminal. The facility will cover 23,425 square meters, more than twice the size of the current facility. Once completed in 2021, the facility will have the capacity to sort up to 18,000 packages per hour, allowing inbound and outbound shipments to be processed faster. As noted in its press release, the airport has seen the volume of international shipments increase by 10.4 percent in 2016 from 2012 to 2,714,217 tons.

Lastly, investments in its fleet continues with the announcements for feeder planes from both ATR and Cessna. As noted on the earnings call, the current fleet of ATRs and 208s are 25 to 26 years old and will be approaching 30 years by 2020 when FedEx take the first deliveries. As described by David Cunningham, President and CEO of FedEx Express, the planes will have “large cargo doors, which is different than the others. And they are also containerized versus being bulk-loaded… we’re creating a lot of efficiency but we’re also creating the opportunity to handle product to markets that we haven’t been able to handle in some of the smaller aircraft to this point”.

The company issued an upbeat outlook. According to Alan B. Graf, executive vice president and chief financial officer for FedEx, “We are increasing our fiscal 2018 forecast, due to enhanced revenue quality, solid demand trends and our success in restoring business impacted by this summer’s cyberattack. We expect to see improved results in our fiscal second half, and we reaffirm our commitment to improve operating income at the FedEx Express segment by $1.2 to $1.5 billion in fiscal 2020 versus fiscal 2017.”

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