FedEx Corp. (FDX)
Analysis of Revenues
High level of difficulty
Accounting Policy on Revenue Recognition
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the basis of revenue recognition in accordance with U.S. generally accepted accounting principles (“GAAP”). To determine the proper revenue recognition method for contracts, FedEx evaluates whether two or more contracts should be combined and accounted for as one single contract and whether the combined or single contract should be accounted for as more than one performance obligation. For most of FedEx’s contracts, the customer contracts with FedEx to provide distinct services within a single contract, such as transportation services. The majority of FedEx’s contracts with customers for transportation services include only one performance obligation, the transportation services themselves. However, if a contract is separated into more than one performance obligation, FedEx allocates the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. FedEx frequently sells standard transportation services with observable standalone sales prices. In these instances, the observable standalone sales are used to determine the standalone selling price.
For transportation services, revenue is recognized over time as FedEx performs the services in the contract because of the continuous transfer of control to the customer. FedEx’s customers receive the benefit of the services as the goods are transported from one location to another. If FedEx were unable to complete delivery to the final location, another entity would not need to reperform the transportation service already performed. As control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. FedEx uses the cost-to-cost measure of progress for the package delivery contracts because it best depicts the transfer of control to the customer which occurs as FedEx incurs costs on the contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues, including ancillary or accessorial fees and reductions for estimated customer incentives, are recorded proportionally as costs are incurred. Costs to fulfill include labor and other direct costs and an allocation of indirect costs. For FedEx’s freight and freight forwarding contracts, an output method of progress based on time-in-transit is utilized as the timing of costs incurred does not best depict the transfer of control to the customer.
FedEx also provides customized customer-specific solutions, such as supply chain management solutions and inventory and service parts logistics, through which FedEx provides the service of integrating a complex set of tasks and components into a single capability. For these arrangements, the majority of which are conducted by FedEx Logistics, Inc. (“FedEx Logistics” (formerly FedEx Trade Networks, Inc.)) operating segment, the entire contract is accounted for as one performance obligation. For these performance obligations, FedEx typically has a right to consideration from customers in an amount that corresponds directly with the value to the customers of the performance completed to date, and as such FedEx recognizes revenue in the amount to which FedEx has a right to invoice the customer.
Source: 10-K (filing date: 2019-07-16).
Revenues as Reported
FedEx Corp., Income Statement, Revenues
US$ in millions
|12 months ended||May 31, 2019||May 31, 2018||May 31, 2017||May 31, 2016||May 31, 2015||May 31, 2014|
|FedEx Express Segment|
|FedEx Ground Segment|
|FedEx Freight Segment|
|FedEx Services Segment|
|Corporate, other and eliminations|
Based on: 10-K (filing date: 2019-07-16), 10-K (filing date: 2018-07-16), 10-K (filing date: 2017-07-17), 10-K (filing date: 2016-07-18), 10-K (filing date: 2015-07-14), 10-K (filing date: 2014-07-14).
|Consolidated revenues||Amount of revenue recognized from goods sold, services rendered, insurance premiums, or other activities that constitute an earning process. Includes, but is not limited to, investment and interest income before deduction of interest expense when recognized as a component of revenue, and sales and trading gain (loss).||FedEx Corp.’s consolidated revenues increased from 2017 to 2018 and from 2018 to 2019.|