OREANDA-NEWS. S&P Global Ratings said today that it has affirmed all of its ratings on Memphis, Tenn.-based FedEx Corp., including our 'BBB' corporate credit rating. The outlook is stable.

"The affirmation on FedEx Corp. reflects our reassessment of the company's business risk profile to strong from satisfactory and our reassessment of its financial risk profile to significant from intermediate, which--combined--support our 'BBB' corporate credit rating on the company," said S&P Global credit analyst Betsy Snyder. The reassessment of the company's financial risk profile is based on our expectation that its FFO-to-debt ratio will increase only modestly over the next two years from the 24% figure it achieved in fiscal-year 2016 (down from 30% in 2015). The company's FFO-to-debt ratio declined in fiscal-year 2016 partially because of the incremental debt associated with its May 2016 acquisition of TNT Express N. V., which was not offset by any of the associated earnings and cash flow from the acquisition because FedEx acquired TNT at the end of its fiscal year, as well as the increased operating lease commitments and pension deficits (which we include in our calculation of its adjusted debt). We expect the company's FFO-to-debt ratio to increase to the mid - to high-20% area over next two years as it continues to integrate TNT (with no significant debt reduction expected over this period). Previously, we had expected FedEx to maintain a FFO-to-debt ratio of at least 30%. Our reassessment of FedEx's business risk profile reflects the company's stronger competitive position following its acquisition of TNT.

The stable outlook on FedEx reflects our expectation that its credit metrics will improve modestly as it begins to integrate TNT and benefits from its improved presence in Europe. At the same time, we do not expect the company to significantly reduce its debt, although we do anticipate that management will moderate its share repurchases somewhat. We expect FedEx's FFO-to-debt ratio to increase to the mid - to high-20% area (from 24% currently) in 2016.

We could lower our ratings on FedEx over the next two years if unanticipated operating challenges from the TNT acquisition or a larger-than-expected amount of share repurchases reduced the company's FFO-to-debt ratio to the low-20% area for a sustained period.

Although unlikely, we could raise on ratings on FedEx over the next two years if its operating performance exceeds our expectations and the company manages its share repurchase program in such a way that its FFO-to-debt ratio increases to 35% for a sustained period.