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FedEx Is a Long-Term Investment

June 23, 2014 | About:
tyokunbo

tyokunbo

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FedEx (FDX) experienced two tragedies. First, a crash involving one of its vehicles resulted in an accident with ten fatalities. Second, a shooting at its facility in Atlanta by a troubled young man led to six deaths and numerous injuries. Despite the headwinds, the company achieved improvements.

Financials
The company’s management is working hard to achieve annual double-digit operating margins in the near future. During the 2014 fourth quarter, the company undertook a combination of strategies, which include a cost management program, the continued expansion of the ground network, and a fleet modernization initiative. As a result of these moves, FedEx’s EPS of $2.46 is an increase of 15% on an adjusted basis. All its segments increased their operating income on an adjusted year-on-year basis, despite one fewer operating day. The company’s strong cash flow from operations enabled it to increase its quarterly dividend by 33%.

Strategies to Drive Growth
In order to further improve its impressive numbers, FedEx has a profit improvement program. The company wants to exit 2016 with a run rate of $1.6 billion in additional operating profit compared to what it achieved in 2013. Also, the company’s expectation for a growth for the reminder of the year has improved. It projects earnings of $8.50 to $9 per diluted share for the full-year 2015. In the next few months, FedEx will continue to maintain an increase in fuel surcharge rates for certain LTL shipments. This will benefit the company’s finances in the next year.

International Expansion
FedEx Express is focused on further expanding its international presence, especially in key markets such as China and India. FedEx is accelerating the development of logistics services for sensitive medical and pharmaceutical products in China. The new facility is designed to meet China's specific demands for storage of medical devices. In India, FedEx Corp. has announced the successful integration of its acquired Indian logistics companies AFL Pvt. Ltd and Unifreight India Pvt. Ltd. With the development, FedEx expanded its services coverage from 4,000 postal codes to over 19,000 in India.

Competition
However, FedEx has to face a tough competition from UPS (UPS). UPS is currently recovering from a challenging start to the year. Its operations were disrupted by an inclement weather. Buildings across UPS network were forced to cease operations somewhere in the U.S. for 34 days during the quarter. These weather events not only led to an increase in cost, but also influenced UPS product and customer mix, contributing to lower yields.

Still, its international segment’s operating margin expanded to 14% on a daily volume growth of 7.9%. UPS reported diluted earnings per share of $1.08. Moving forward, it announced several investments during the quarter, including the acquisition of Polar Speed. This addition will provide an improved access to the important U.K. market as well as unique cold chain transportation capabilities.

FedEx will also compete with Atlas Air Worldwide Holdings (AAWW). The company announced significant news regarding its placement of two 747-8Fs with DHL Express. They reflect DHL's desire to acquire an additional capacity for its business growth. As a result, Atlas Air will be operating four 747-8s and five 747-400s in ACMI for DHL, as well as continuing to operate seven 767s in CMI for them.

Takeaway
FedEx’s balance sheet remains strong. All its initiatives are to ensure the long term success of the company. This includes a goal to provide superior returns to shareholders. Investors who own the stock should retain as it can yield handsome returns in the future.


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