FedEx’s quarterly earnings take hit from cyberattack, hurricane

After a record fourth quarter in its fiscal year 2017, FedEx’s 2018 fiscal year got off to a rougher start as TNT Express operations faced costly setbacks from a cyberattack, and as the company’s US operations felt the disruptive forces of Hurricane Harvey. Overall net income was down 17% year-over-year, to US$596 million on total revenues that were up 4.3% to $15.3 billion.

As can be seen from the chart at right, FedEx Express, which includes TNT Express, took a substantial hit from the NotPetya cyberattack which struck the company in June. FedEx estimates operating income was $300 million lower because of the cyberattacks. As a result, the segment’s operating income fell 29% to $433 million for the quarter, compared with $610 million during Q1 of FY2017.

Average daily Express package volumes were up a slight 1.8% y-o-y for the quarter, driven primarily by increased demand for US Deferred and International Domestic services, which were up 6.3% and 4.9% respectively. Demand for US Overnight Box shipments, the company’s most popular service in the United States, was down 5.3%. Much of this can be attributed to Hurricane Harvey which impacted FedEx operations during the quarter as airports cancelled flights, bringing logistics operationsto a temporary halt. Despite the visible impact, things could have been far worse. Ahead of the storms the company prepared contingency plans which according to FedEx, aided recovery.

Turning now to other segments, there were also some bright spots in the quarter. Financial results for the company’s Freight segment were strong, despite on slight increases in freight volumes.  Operating income increased 30%, to $176 million, with most of the increase coming from higher LTL revenue per shipment, higher base rates for shipments, increased weight per shipment and higher surcharges for fuel. FedEx credited the improvements to the financial performance of its freight segment to growing demand from the manufacturing sector, especially within high-tech industries. Average daily LTL Shipments rose 1%, while weight per LTL shipment rose 2%. .

FedEx Ground meanwhile, reported revenues up 9.0% on daily package volumes that were 4.0% higher. Operating income for the segment was up 2.6% for the quarter, to $626 million.

For the remainder of the fiscal year, FedEx plans to focus on integrating its recent European acquisition, TNT Express with its FedEx operations. Plans were already in place to replace TNT systems with FedEx technology before the cyberattack, which prompted FedEx to accelerate the integration of the businesses. FedEx predicts the companies will be completely integrated by the end of FY2020.

As usual for this time of year, FedEx announced rate changes to begin with the next calendar year. The company will increase its shipping rates by 4.9 percent beginning on Jan. 1, 2018, for its Express, Ground and Freight segments.

Those interested in hearing more from FedEx are invited to join us in Miami 2-4 October for the Cargo Facts Symposium. Rajesh (Raj) Subramaniam, executive vice president, chief marketing and communications officer, for FedEx Corp will be present for an exclusive Fireside Chat. For more information, or to register, visit www.cargofactssymposium.com.