Will the TNT Cyberattacks Impact FedEx’s Planned Capital Expenditure?



FedEx’s capex

In fiscal 1Q18, FedEx’s (FDX) incurred $1.04 billion in capital expenditure or capex, representing 6.8% of that quarter’s total revenues of $15.3 billion. For fiscal 2018, FDX has estimated a $5.9-billion outlay in the form of capital investments.

Careful observation of FDX’s pattern of capex reveals that the company typically incurs higher capex in the second and fourth quarters of its fiscal year. But on a YoY (year-over-year) basis, its capex-to-revenue ratio has fallen. This could be attributed to FDX’s $4.8-billion acquisition of Netherlands-based TNT Express—the largest its history.

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Will the TNT cyberattacks impact capex?

In its fiscal 1Q18 earnings call, FedEx stated that it will continue to execute its TNT integration plans. The TNT integration program spans 200 companies and consists of merging pickup and delivery operations at local levels and at global and regional air and ground networks. TNT’s integration with FedEx Express is anticipated to be complete by end of fiscal 2020.

FedEx forecasts the total integration process expenses, along with TNT-related restructuring costs, to reach $800.0 million over the next four years, of which $350.0 million will be incurred in fiscal 2018.

According to Alan Graf, FedEx’s CFO (chief executive officer), “We do continue to refine our integration plans, however, particularly in light of the recent cyber attack at TNT Express. As a result, the timing and amount of integration expenses and capital investments in any future period may change as we implement our plans.”

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Our analysis

Given FedEx’s capex-to-revenue ratio over the past eight quarters, it appears that the company could potentially spend less on capex in coming quarters. The loss of revenue due to the cyberattacks at TNT Express could force FDX to lower its capex in fiscal 2018.

Since capex is related to future top-line growth, FedEx may not realize TNT’s estimated revenues for the next few quarters.

Investing in ETFs

Investors interested in indirect exposure to transport stocks can consider the First Trust Industrials/Producer Durables AlphaDEX Fund (FXR). Prominent US airlines (DAL), railroads (CSX), trucking (JBHT), and other logistics companies (UPS) together make up ~21% of FXR’s portfolio.

In the next part, we’ll assess TNT Express’s results for fiscal 4Q17.


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