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Sep 19, 2017

FedEx profits down after hurricane and cyber attack

John Stephenson discusses FedEx

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Package delivery company FedEx Corp on Tuesday reported a lower-than-expected quarterly net profit due to service disruptions from a cyber attack on its Dutch unit, the impact of Hurricane Harvey and higher costs, and also lowered its full-year earnings forecast.

Shares of the company, often considered a bellwether for the U.S. economy as are those of rival United Parcel Service Inc, dipped more than two per cent in after-hours trading.

The Memphis-based company reported net income for its fiscal first quarter ended August 31 of US$596 million or US$2.19 per share, down more than 16 per cent from the year-ago US$715 million or US$2.65 per share.

Excluding one-time items, the company reported earnings per share of US$2.51. Wall Street analysts had expected earnings per share of US$3.09.

Excluding the impact of the cyber attack and Hurricane Harvey, FedEx said it would have posted EPS of US$3.32, above analysts' expectations.

Most services of the Dutch TNT Express unit resumed during the quarter and systems had been restored, but TNT Express volume, revenue and profit still remained below pre-attack levels, the company said.

FedEx did not have an insurance in place that covered the impact from the cyber attack.

"The impact of the cyberattack on TNT Express and lower-than-expected results at FedEx Ground reduced our first-quarter earnings," said FedEx Corp Chief Financial Officer Alan Graf. "We are currently executing plans to mitigate the full-year impact of these issues."

FedEx also said higher shipping rates across its operating units were more than offset by the cyber attack, costs related to the integration of its TNT unit, higher costs at its FedEx ground, and a higher tax rate.

The company's operating margin fell to 7.3 per cent from 8.6 per cent.

FedEx lowered its forecast for fiscal 2018 earnings per diluted share to a range of US$11.05 to US$11.85, from a previous range of US$12.45 to US$13.25. Analysts forecast earnings of US$13.01 per share for the full year.

Overall revenue rose to US$15.3 billion from US$14.7 billion in the year-ago period. Analysts had expected US$15.35 billion.

FedEx said on Monday it will increase its Express, Ground, and Home Delivery shipping rates by an average of 4.9 per cent on January 1.

FedEx and rival UPS usually unveil price increases for the coming year around this time.