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Why FedEx Could Miss Analysts’ Estimates for Fiscal 1Q18

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Part 5
Why FedEx Could Miss Analysts’ Estimates for Fiscal 1Q18 PART 5 OF 7

Inside FedEx’s Long-Term Expectations for Express

FedEx’s Express segment

In fiscal 2017, FedEx’s (FDX) Express segment reported $34.8 billion in revenues, accounting for 57% of the company’s overall revenues of $63.3 billion. The Express segment includes TNT Express revenues from that period, an acquisition that has given FedEx a strong competitive edge over United Parcel Service (UPS), which has a strong presence in European markets.

FedEx is aiming for an operating income improvement of $1.2–$1.5 billion in fiscal 2020, compared with fiscal 2017, in its Express segment, including TNT Express. FedEx anticipates that the TNT Express integration into its Express segment will be complete by May 2020.

Inside FedEx’s Long-Term Expectations for Express

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A snapshot of TNT’s fiscal 4Q17 earnings

TNT Express’s revenues reached $1.9 billion in fiscal 4Q17, with an adjusted operating income of $83.0 million. Its adjusted operating margin was 4.4% that quarter. Notably, starting in fiscal 1Q18, FedEx will include the TNT results with its Express segment’s results.

FedEx believes that the TNT acquisition will improve its international profits and expects the acquisition to lower its overall effective tax rate. Investors should thus pay attention to the Express segment’s results for fiscal 1Q18.

By utilizing TNT’s lower cost of operations at its Liege hub in Belgium, FedEx expects cost savings going forward. The Liege hub is also at the territorial center of a key business triangle between Frankfurt, London, and Milan. TNT Express has a notable domestic market share in UK, Italy, Spain, and Benelux.

The changing LTL landscape

A series of merger and acquisition transactions have now altered the LTL (less-than-truckload) (ODFL) (XLI) landscape in recent years. FedEx’s TNT acquisition is expected to give a solid push to its presence in Europe. Notably, with three major acquisitions in the past one or two years, XPO Logistics (XPO) has become the second-largest company in the group of LTL carriers in the US.

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