Reducing Our Fair Value Estimate on FedEx

However, international Express fared not nearly so well. Growth was strong in lower-priced international economy parcels and international economy freight, but yield degraded a bit on these products. Furthermore, TNT profit improvement has apparently also stalled. Weaker-than-expected mix and volume will delay the $1.2 billion to $1.5 billion of EBIT improvement previously planned from fiscal year 2017 to 2020. In fact, management did not update the date of new realization.

In response to lower international Express results, particularly in Europe and Asia, the company is offering a voluntary buyout to U.S. and international Express and Services segment employees and reducing its Express international network capacity. The buyout cash cost will come in the fourth quarter and approximate $450 million to $575 million, with savings of $225 million to $275 million in fiscal year 2020. Some of the buyout is for IT personnel who worked on older systems and hardware at FedEx and TNT.

Looking forward, FedEx sees strength in the U.S. and expects overall growth to be positive but slower than in recent periods. We are reducing our near-term growth expectations for international operations and moderating our margin improvement expectations for Express. We maintain our narrow economic moat rating as FedEx works through regional challenges.

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