FedEx Corporation (NYSE:FDX) Q3 2018 Earnings Conference Call - Final Transcript
Mar 20, 2018 • 05:00 pm ET
Frederick W. Smith
in each of our transportation segments, and remain confident we will improve operating income at the Express segment by $1.2 billion to $1.5 billion in fiscal 2020 versus fiscal 2017.
We remain committed and optimistic about growing earnings, cash flows, returns and margins. Economic growth around the world remains broadly based, and we expect U.S. tax reform to continue to increase economic growth and investment.
FedEx is concerned about the prospect of increased protectionist tariffs as history has shown repeatedly that protectionism is counterproductive to economic growth. The better approach is to encourage open markets and free exchange of products and services, and to reduce barriers to trade.
Congratulations to our team members around the world for another outstanding peak season with record volumes and high service levels. TNT integration efforts are accelerating, and we are well positioned for profitable, long-term growth due to investments in our networks and people such as our recent commitment to $3.2 billion in wage increases, bonuses, pension funding and expanded U.S. capital investment.
FedEx is proud to be in the top 10 companies in Fortune magazine's World's Most Admired list and among its Best Companies to Work For. We believe this reflects our team member's dedication through our Purple Promise, which states simply, "I will make every FedEx experience outstanding."
Now, let me turn the call over to my colleagues for their insight. First-off, Alan Graf. Alan?
Alan B. Graf
Thank you, Fred. We included additional information in today's earnings release, and I will provide additional detail during my discussion today, about our third quarter due to unusually complex operating results and the impact of the Tax Cuts and Jobs Act or TCJA. We will also provide additional details today regarding our expected fourth quarter financial performance, given the complexities of the TCJA, and third quarter results in order to help you understand the underlying performance of our businesses.
Our adjusted earnings per share for the quarter was $3.72, up 62% from an adjusted $2.30 last year, primarily due to benefits from the TCJA. Operating income increased slightly year-over-year to $1.11 billion with higher base rates at each of our transportation segments, increased volumes at Ground and Freight, and a favorable net impact from fuel.
These improved results were impacted by the timing of significantly higher variable compensation accruals, which were up $140 million in the third quarter. Variable compensation increased year-over-year due to sharing some of the benefits of U.S. tax reform with employees as we announced on January 26, our improved outlook for FY18, and the timing of recognizing expense in FY18 compared to FY17. Results were also impacted by higher peak-related costs at Express and adverse weather.
Before I talk about the operating results for the segments, I'd like to mention the tax benefits in our GAAP results since they were significant this quarter. We recorded a benefit of $1.53 billion from the TCJA. This primarily includes a provisional benefit of $1.15 billion from the re-measurement of the company's net U.S. deferred tax liability