Fleet Management

Earnings Watch: FedEx Profit Falls Due to Cyberattack, Hurricane Harvey

September 19, 2017

By Evan Lockridge

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FedEx Corp. on Tuesday afternoon reported its earnings during its fiscal 2018 first quarter fell 17% from a year ago as a result of a cyberattack and Hurricane Harvey, despite a slight improvement in revenue, and it's planning higher shipping rates.

The Tennessee-based parcel delivery and trucking company reported net income of $596 million, or $2.19 per share, for the three months ending Aug. 31, compared to net income of $715 million, or $2.65 per share, during the same time in 2016.

Total revenue in the most recent quarter increased 4% from a year earlier to nearly $15.3 billion.

According to the company, the results benefited from higher base rates at each of its transportation segments. However, they were offset by reduced revenue and increased expenses resulting from the TNT Express cyberattack, TNT Express integration expenses, higher costs at FedEx Ground, a higher tax rate, and the effects from Hurricane Harvey.

The worldwide operations of TNT Express were significantly affected during the first quarter by the June 27 “NotPetya” cyberattack. Most TNT Express services resumed during the quarter. and substantially all TNT Express critical operational systems have been restored. However, TNT Express volume, revenue and profit still remain below previous levels, according to FedEx.

For the first quarter, FedEx Freight, the company’s trucking segment, reported revenue increased 6% to $1.75 billion while operating income improved 30% to $176 million.

Revenue increased primarily due to higher base rates, increased weight per shipment and higher fuel surcharges, according to FedEx. Average daily less-than-truckload (LTL) shipments grew 1%. Operating results improved primarily due to higher LTL revenue per shipment.

The FedEx Express segment, which includes TNT Express, saw revenue increase 2.2% to $8.65 billion, but operating income fell 29% to $433 million.

The company reported revenue grew primarily due to higher U.S. domestic package base rates and strong international package growth, which was partially offset by the impact from the TNT Express cyberattack.

Operating results declined due to an estimated $300 million impact from the cyberattack. This was partially offset by the benefits from revenue growth, lower incentive compensation accruals, and ongoing cost management initiatives. The results include $88 million of TNT Express integration expenses.

Meantime, FedEx Ground saw revenue increase 8% to $4.64 billion, while operating income moved 3% higher to $626 million. Revenue increased primarily due to average daily package volume growth of 4% and higher commercial service base rates, according to FedEx.

FedEx also announced that beginning the first of 2018, FedEx Express, FedEx Ground and FedEx Freight will increase shipping rates by an average of 4.9%. Effective Jan. 22, 2018, dimensional weight pricing will apply to FedEx SmartPost shipments. Details related to these and additional changes to rates and surcharges are available on the FedEx website.

Looking ahead to the end of the current fiscal year, FedEx said it is unable to provide earnings guidance due to pension accounting adjustments. However, it lowered its fiscal 2018 forecast due to the estimated full-year impacts of the TNT Express cyberattack.

“The impact of the cyberattack on TNT Express and lower-than-expected results at FedEx Ground reduced our first quarter earnings,” said Alan B. Graf Jr., FedEx Corp. executive vice president and chief financial officer. “We are currently executing plans to mitigate the full-year impact of these issues.”

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