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How Cyberattacks Crippled FedEx’s Fiscal 1Q18 Earnings

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Part 2
How Cyberattacks Crippled FedEx’s Fiscal 1Q18 Earnings PART 2 OF 10

Behind FedEx’s Revenue Results for Fiscal 1Q18

FedEx’s fiscal 1Q18 revenues

FedEx (FDX) reported revenues of $15.3 billion for fiscal 1Q18, missing the analysts’ expectation by 0.4%. Compared with its revenues of $14.6 billion in fiscal 1Q17, FDX’s fiscal 1Q18 revenues showed a 4.3% rise.

This rise was due to higher base rates in all four of FDX’s operating segments. However, the company was negatively impacted by lower revenues due to the TNT Express cyberattacks and Hurricane Harvey.

Behind FedEx&#8217;s Revenue Results for Fiscal 1Q18

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The acquisition of TNT Express and e-commerce-driven (AMZN) parcel shipments fueled FDX’s revenue growth in fiscal 1Q18. Its average revenue growth over the past eight quarters before fiscal 1Q17 had been 5.2%—slightly higher than the revenue growth it posted for fiscal 1Q18.

Segmental revenue break-up

FedEx operates in four major segments: FedEx Express, FedEx Ground, FedEx Freight, and FedEx service. At the beginning of fiscal 1Q18, the parent company started combining TNT Express’s revenues into the FedEx Express segment.

The Express vertical is the largest contributor to FDX’s revenues, accounting for 56.6% of total revenues in fiscal 1Q18, followed by the Ground division, which has a 30.3% share. The Freight and Services segments accounted for 11.5% and 2.6%, respectively, of total revenues in fiscal 1Q18.

Chairman and CEO (chief executive officer) Frederick Smith stated: “The first quarter posed significant operational challenges due to the TNT Express cyberattack and Hurricane Harvey.”

Smith added: “We reaffirm our commitment to improve operating income at the FedEx Express segment by $1.2 billion to $1.5 billion in fiscal 2020 versus fiscal 2017.”

Peer group revenue growth

FedEx’s arch-rival United Parcel Service (UPS) reported a 7.7% rise in 2Q17 revenues riding on B2B (business-to-business) and B2C (business-to-consumer) e-commerce revenues. North Carolina-headquartered Old Dominion Freight Line’s (ODFL) revenues in the same quarter jumped 11.2% due to higher LTL (less-than-truckload) (XLI) tons per day and higher LTL revenues per hundredweight.

The second-largest LTL group in the United States, XPO Logistics (XPO), posted 7.5% growth in its 2Q17 revenues on higher European Contract Logistics revenues.

In the next part, we’ll discuss FedEx’s Express segment performance in 1Q18.

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