FedEx Takes Earnings Hit Following Cyberattack -- Update

By Ezequiel Minaya and Michelle Ma 

FedEx Corp. said Tuesday that a cyberattack earlier this year dented earnings in its latest quarter by roughly $300 million, prompting the package delivery giant to cut its profit forecast for the rest of the fiscal year.

The company said that the June 27 attack, which security experts dubbed Petya, dragged on per-share earnings by 79 cents, reduced its quarterly earnings by a third, as its computer systems at its TNT Express business were disrupted for weeks. The company said it has restored most of TNT's services and critical technology, but it is still working on some customer-specific systems.

"This was not an ordinary cyberattack," FedEx's finance chief, Alan Graf, said during a conference call with analysts. "We believe that this attack was the result of a nation-state targeting Ukraine and companies that do business there."

The company expects TNT systems damaged by the attack to be fully restored by the end of September.

FedEx, which wasn't covered by cyberinsurance, said it is "re-examining where the market is" and is considering adding coverage, Mr. Graf said. The company said the attack was contained to TNT and didn't impact FedEx Express systems or its customers.

FedEx shares fell 1.6% to $212.55 in after-hours trading. They were up 16% so far this year.

FedEx acquired TNT Express last year for $4.8 billion, the largest acquisition in FedEx's history as part of a move to accelerate its growth abroad.

FedEx expects integration of the Dutch company to be finished in 2020. Integration expenses, including restructuring charges, are expected to be about $800 million, with $350 million of that expected to be incurred fiscal 2018.

Like rival United Parcel Service Inc., FedEx is making preparations for the surge in holiday shipments from the boom in online shopping, which has tested the two package-delivery giants. Executives said Tuesday they expect to hire 50,000 employees for the peak holiday season, about the same level as last year.

The company said it would also add surcharges on "the small number" of large retail and e-commerce customers that drive the surge on peak deliveries. It is also charging extra fees for oversize packages for the entire holiday season. UPS announced earlier this year plans to apply surcharges on all shipments on certain peak-volume days.

For the fiscal first quarter ended Aug. 31, FedEx reported a profit of $596 million, or $2.19 a share, down from $715 million, or $2.65 a share, a year ago. It said the cyberattack reduced per-share earnings by 79 cents in the period. Revenue rose 4% to $15.3 billion.

The company lowered its profit targets for the rest of the fiscal year. It now expects per-share earnings, excluding certain items, to be between $12 and $12.80, down from its previous estimate of between $13.20 and $14.

Starting Jan. 1, FedEx said it would FedEx Freight, Express, Ground and Home Delivery shipping rates in the U.S. would increase by an average of 4.9%.

Write to Ezequiel Minaya at [e-mail]

(END) Dow Jones Newswires

September 19, 2017 19:54 ET (23:54 GMT)

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