FedEx Corporation — FY2022 Form 10-K
Reporting period: Fiscal year ended May 31, 2022, compared with fiscal 2021. This filing reports a full fiscal year, not a standalone 2021 Q4 period.
Business context
FedEx provides express, ground, and less-than-truckload freight transportation, alongside logistics, e-commerce, and business services. Its principal reportable segments are FedEx Express, FedEx Ground, and FedEx Freight; FedEx Services supports the operating businesses.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $93.512 billion | $83.959 billion | Up 11% |
| Operating income | $6.245 billion | $5.857 billion | Up 7% |
| Operating margin | 6.7% | 7.0% | Down 30 basis points |
| Net income | $3.826 billion | $5.231 billion | Down 27% |
| Diluted EPS | $14.33 | $19.45 | Down 26% |
| Cash from operations | $9.832 billion | $10.135 billion | Down $0.303 billion |
| Capital expenditures | $6.763 billion | $5.884 billion | Up 15% |
| Cash and cash equivalents at year-end | $6.897 billion | $7.087 billion | Down $0.190 billion |
At May 31, 2022, total debt was approximately $20.264 billion, including finance lease obligations. Cash and available liquidity under credit agreements totaled approximately $10.4 billion ($6.9 billion cash plus $3.5 billion available). The debt-to-adjusted-EBITDA covenant ratio was 1.82x against a 3.5x maximum. Operating lease liabilities were $16.930 billion.
Segments and changes versus prior year
- FedEx Express: Revenue rose 9% to $45.814 billion; operating income increased 4% to $2.922 billion, while margin declined to 6.4% from 6.7%. Package and freight yields improved, but volumes weakened in several categories and labor, inflation, and network disruption weighed on results.
- FedEx Ground: Revenue rose 9% to $33.232 billion, but operating income fell 17% to $2.642 billion and margin decreased to 8.0% from 10.5%. Labor constraints, higher purchased transportation costs, network inefficiencies, and self-insurance costs offset yield gains.
- FedEx Freight: Revenue increased 22% to $9.532 billion; operating income rose 65% to $1.663 billion and margin improved to 17.4% from 12.8%. Higher yields and shipment growth supported performance.
Across the company, pricing and higher fuel surcharges, service mix, and volume growth in Ground commercial and Freight contributed to revenue gains. Fuel expense rose 77%; management said fuel surcharges more than offset higher fuel costs and benefited operating income. Operating expenses overall rose 12%, with labor-market challenges and inflation contributing to cost pressure.
Liquidity, unusual items, and contingencies
- Net income included a $1.578 billion pre-tax noncash retirement-plan mark-to-market loss, versus a $1.176 billion gain in FY2021. The company reported the 2022 impact as $1.199 billion net of tax, or $4.49 per diluted share, in its discussion of consolidated results.
- Operating results included $278 million of European workforce realignment costs and a $210 million charge for pre- and post-judgment interest in a FedEx Ground legal matter. TNT Express integration expenses were $132 million, down from $210 million.
- A New Mexico vehicle-accident judgment was paid in July 2022 for approximately $370 million. Insurers funded the base judgment above FedEx Ground’s retention; FedEx is pursuing reimbursement of approximately $210 million of interest.
- The company repurchased $2.248 billion of stock in FY2022 and paid $793 million in dividends. It expected to repurchase $1.5 billion of stock in FY2023.
- Ernst & Young issued unqualified opinions on the financial statements and internal controls; management reported internal control over financial reporting was effective at year-end.
Outlook and key risks
Management anticipated FY2023 revenue and operating income growth, relying on yield improvement, cost control, productivity initiatives, and matching network capacity to demand. It expected capital expenditures of approximately $6.8 billion. The filing describes slowing economic conditions, inflation, labor availability, supply-chain constraints, fuel prices, geopolitical uncertainty, and COVID-19 effects as significant sources of uncertainty.
FedEx expected approximately $420 million of pre-tax European realignment costs through FY2023 and annualized savings of $275 million to $350 million beginning in FY2024; the plan affects approximately 5,000 employees and remains subject to local consultation processes. Other important risks include ongoing pilot-contract negotiations, lawsuits concerning Ground service-provider driver classification, the USPS contract expiring in September 2024, cyber and data-protection risks, and the ability to execute international network changes. The company’s carbon-neutrality goal for global operations is calendar 2040; achievement depends on technology, vehicle and fuel availability, infrastructure, and regulation.
Important facts for investors to verify
- Whether FY2023 yields and cost actions offset softer volumes, labor inflation, and other operating pressures, particularly at Express and Ground.
- The timing, cash cost, consultation outcomes, and realized savings from the European workforce reduction plan.
- Recovery, if any, of the approximately $210 million legal-judgment interest payment from insurers, and developments in other Ground litigation.
- Liquidity and capital-allocation plans against approximately $6.8 billion of expected FY2023 capital spending, planned pension contributions, dividends, and repurchases.
- Developments in pilot negotiations, the USPS relationship and 2024 contract renewal, and service-provider classification cases.
- Retirement-plan and self-insurance assumptions: FY2022 self-insurance accruals were $4.535 billion, and U.S. pension plan assets were below the projected benefit obligation at year-end.