FedEx’s TNT Express segment
Investors should note that since TNT Express’s integration with FedEx’s (FDX) Express segment hasn’t yet completed, the TNT results won’t be shown as a separate segment until 1Q17. FDX plans to integrate TNT Express over the course of four years through a series of restructuring.
TNT Express’s fiscal 2Q17 Results
TNT’s revenues rose 5.3% sequentially in fiscal 2Q17 to $1.9 billion, and its operating expenses rose 0.6% during the same period. This caused TNT Express’s operating margin to rise to 3.7% in fiscal 2Q17 from -0.8% in fiscal 1Q17. FedEx was able to bring down TNT’s employee costs and purchased transportation costs by 2.1% and 2.5%, respectively, in fiscal 2Q17. This improved TNT’s performance in the latest reported quarter.
How will FedEx benefit from TNT?
FedEx expects to transform into a strong global player to challenge its fierce competitor, United Parcel Service (UPS), which has a robust international presence. TNT’s Liege hub in Belgium is also at the territorial center of a prominent business triangle between London, Frankfurt, and Milan. TNT also has a sizeable domestic market share in the UK, Spain, Benelux (Belgium, the Netherlands, and Luxembourg), and Italy.
FedEx plans to foray deeply into TNT’s customers through TNT’s solid European road network in the parcel and freight business. This enhanced customer access may open up more cross-selling opportunities for FedEx in Europe. Investors should note that TNT not only has a good presence in Europe but also in Asia. This should further strengthen FDX’s share in emerging markets.
The FDX-TNT combined entity will be well positioned to offer a variety of transportation solutions. These include express, global freight forwarding, contract logistics, and surface transportation capabilities.
Investors interested in the transportation and logistics sector can consider investing in the iShares US Industrials ETF (IYJ). Major railroads, including CSX Corporation (CSX) and Union Pacific (UNP), and prominent airlines (DAL) make up ~5.9% and 5.1%, respectively, of the total portfolio holdings of IYJ.
In the next part, we’ll see what FedEx returned to its shareholders in fiscal 2Q17.