FedEx Good News Gets Even Better With Big-League Tax Cut: Gadfly

By Brooke Sutherland | Bloomberg December 19 at 5:58 PM

FedEx Corp.’s delivery truck is heading in the right direction, but the turbo-charge from Uncle Sam won’t hurt.

The $65 billion company reported earnings after the close of trading on Tuesday, besting analysts’ quarterly estimates and raising its full-year outlook.

FedEx is now targeting $11.45 to $12.05 in fiscal 2018 adjusted earnings per share, up from $11.05 to $11.85 previously.

That range rises to $12.70 to $13.30 if you adjust it further to exclude the integration costs from its purchase of Netherlands-based TNT Express last year (more on that later).

FedEx Estimated Tax Benefit

Intriguingly, FedEx also gave a third guidance range that reflects the effect of the tax cut Republicans are trying to pass.

It’s one of the few companies I’ve seen try to parse the legislation’s earnings impact, and the benefits are major: the tax bill would add an estimated $4.40 to $5.50 to FedEx’s fiscal 2018 adjusted EPS.

To put that in context, that’s an extra $1.3 billion in earnings at the midpoint of the range, based on the company’s shares outstanding as calculated by Bloomberg.

That FedEx of all companies would start running the numbers before the tax bill has even become law isn’t surprising.

CEO Fred Smith is a major fundraiser for Republicans and earlier this year was pitching his own version of tax reform.

The biggest reason for the 2018 boost is the revaluation of net deferred tax liabilities, according to the company. FedEx, which gets the vast majority of its revenue from the U.S. even after the TNT deal, paid an effective tax rate of 34.6 percent in 2017 and had been expecting a levy of between 32 percent and 35 percent for 2018, per its annual filing. The latest version of the tax bill targets a corporate rate of just 21 percent.

The earnings boost comes as FedEx also gets a better handle on the surge of e-commerce shipments that have flooded its network over the past few years.

Home deliveries are less profitable for the company than corporate drop-offs because drivers have to make multiple stops and take more circuitous routes.

FedEx has invested heavily in building out its network, and those efforts are paying off.

Adjusted for TNT integration expenses, FedEx increased operating margins in each of its main divisions: Express, Ground and Freight. That hasn’t happened for quite a while.

The true test will come when FedEx reports its third-quarter 2018 results in the spring.

That period will encompass the bulk of the all-important holiday season, but the company’s latest earnings should give investors more confidence that it will avoid the missteps of its past, perhaps better than rival United Parcel Service Inc.

It might have been a total slam dunk of an earnings report -- if not for those darn TNT integration expenses.

That business was the victim of a cyberattack earlier this year, forcing FedEx to accelerate its transition to the parent company’s information technology and operational infrastructure.

FedEx now expects $1.4 billion of integration expenses through fiscal 2020, up from $800 million.

About $450 million of that bill will hit during its fiscal 2018. That likely won’t be enough to overshadow the rest of FedEx’s good news, but it’s just another headache for a deal that has already delivered plenty of them.

 

According to everything they've piblished about these tax cuts corporations will be hiring more workers and giving them raises. I have been stalking FedEx forever. I think the tax cut will mean they will be hiring pilots and giving them a pay boost.

 

not

 

Even if wages don't go up until the next contract, they'll probably hire more pilots like me since the tax cut will be huge. The effective rate will go from 21% to 9%.

 

A company’s workforce needs are diven by demand and companies will only pay as much as they have to recruit that workforce to meet that demand. Tax policy is not a direct driver of hiring regardless of what the proponents of this tax bill say.

Perhaps the knock on effects of folks having more cash would increase demand that might drive hiring, but the rate cuts will drive more buy backs, higher dividends, and more acquisitions.

We might get pay raises round here if folks werent so willing to capitulate at every turn, but the “team players” and independent contractors outnumber those expecting a fair share of the profits their labor generates, for now At least

 

Wow. If we give up our A-plan now, combined with the corp tax cuts, fdx can afford to give us a 3.65% pay raise AND a 1 % B-fund bumb on our next CBA.

https://www.washingtonpost.com/news/business/wp/2017/12/20/fedex-says-new-tax-cuts-could-boost-annual-profits-by-1-3b/?utm_term=.9c6a1d6c382c

 

You got it figured out.

 

There's no incentive for the company to offer you guys a pay raise, outside of normal contract negotiations. After all, you're working now, for the pay you get. You negotiated those pay rates, why would they want to add to their expense, before the next contract? Just sayin'.

 

I would hope FedEx will invest in more aircraft / improvement on existing aircraft / facilities, then maintain or increase the current hiring levels. A lot of extra pilots are nice but need the aircraft for them to operate.

 

Now the company can afford to move the 767 lav out of the cockpit!