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FedEx’s TNT Cyber Attack Impacts Earnings

The American multinational courier giant FedEx ( FDX ) delivered disappointing fiscal 2018 first-quarter earnings.

Having posted robust fourth-quarter earnings, the company was confident about carrying on the same momentum. But its hopes of delivering good first-quarter results were shattered when the company's subsidiary, TNT Express, was hit by a cyber attack in June. Hurricane Harvey also hampered earnings.

FedEx operates in more than 220 nations and territories across the globe. Here's a look at the company's quarterly performance.

The TNT cyber infringement

A number of factors caused the first-quarter earnings of FedEx to fall. The prime cause was the cyber attack on TNT Express. TNT Express had to go through some serious trouble post the attack. TNT Express' operations got derailed, and it had to resort to manual processes. The packaging process got slower, and customers found it troublesome to track their consignment.

As a matter of fact, many customers shifted their focus to United Parcel Service ( UPS ) and DHL. The good news nonetheless is that all the TNT IT systems have started functioning. The recovery process took months, and operating income decreased by $300 million. Now, the company looks forward to regaining its lost market share. Frederick W. Smith, the company's chair and CEO, said:

Snapshot of the quarter

In the first quarter, FedEx reported $2.19 earnings per share while the adjusted earnings per share stood at $2.51. The package delivery giant's revenue for the quarter surged 4.3% on a year-over-year basis to $15.30 billion. Operating income during the quarter plummeted 6.8% to $1.24 billion on an adjusted basis.

FedEx divides its quarterly revenue and operating income into three segments. The FedEx Express sector recorded revenue of $8.65 billion during the quarter while the operating income was $521 million (down 20% year over year). FedEx Express constitutes the core of the company's business. FedEx Ground's revenue came in at $4.64 billion and operating income of this segment was $626 million. The company's freight segment generated revenue and operating income of $1.75 billion and $176 million. Barring the Express segment, the other two segments' performance was remarkable.

FedEx's guidance

The company has come out with a bleak 2018 guidance on the back of the cyber attack on TNT Express. The delivery giant's earnings per share guidance for fiscal 2018 has come down to $11.05 to $11.85 from a previously estimated range of $12.00 to $12.80 per share. Capital expenditure is estimated to be $5.9 billion.

The attack is expected have a bearing throughout the year, but it should diminish every quarter. Meanwhile FedEx expects to alleviate the attack's impact by capitalizing on the approaching holiday season and plans to hire around 50,000 employees to assist in managing the holiday rush. Whether the courier giant regains its customers over time and registers a record holiday season remains to be seen.

Disclosure : I do not hold any position in the stock mentioned in this article.

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This article first appeared on GuruFocus .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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