FedEx Corporation
(
FDX
) reported fourth quarter fiscal 2012 adjusted earnings of $1.99
per share. The quarter's earnings surpassed the Zacks Consensus
Estimate of $1.92 and the year-ago earnings of $1.75. The
outperformance was attributable to strong yields, remarkable
performance by FedEx Ground and improvement in FedEx Freight
service offerings.
Adjusted earnings exclude 26 cents per share of special items
related to aircraft impairment charges under FedEx Express.
For the full year, the company reported adjusted earnings per
share of $6.59, 34.5% up from adjusted earnings of $4.90 a year
ago.
Total revenue for the fourth quarter climbed 4% year over year
to $11 billion but missed the Zacks Consensus Estimate of $11.2
billion. For fiscal 2012, total revenue increased 8.7% year over
year to $42.7 billion.
Operating income for the quarter grew 11.5% year over year to
$990 million. Operating margin also showed an increase of 60 basis
points (bps) to 9.0% from 8.4% in the year-ago quarter. Operating
expenses rose 5% year over year to $10.2 billion.
For the full year, operating income increased 29.1% year over
year to $3.28 billion. Operating margin improved 120 bps to 7.7%
from 6.5% in the prior year. Operating expenses were $39.5 billion,
up 7% year over year.
Segment Results
Quarterly revenues at
FedEx Express
were $6.80 billion, up 3% year over year. Operating income was down
3% year over year at $415 million, resulting in an operating margin
of 6.1%, down 40 bps from 6.5% in the year-ago quarter.
The negative impacts of poor package volumes along with demand
shift toward international services with lower profitability
affected the operating income of the segment. However, these
headwinds were partially offset by a fuel surcharge timing lag.
The FedEx International Priority (IP) average daily package
volume dipped 3% year over year on lower Asian demand, while
revenue per package (yield) grew 3% on higher fuel surcharges and
package weights. The U.S. domestic revenue per package rose 6% year
over year despite a 5% decline in the U.S. domestic average daily
package volume. The revenue growth was primarily attributable to an
increase in demand for premium FedEx First Overnight service
offerings, freight rates and fuel surcharges.
FedEx Ground
revenue in the fourth quarter increased 9% year over year to $2.48
billion attributable to package volume growth at FedEx Ground.
Operating income upped 18% year over year to $494 million,
resulting in operating margin of 20.0% compared with 18.4% in the
year-ago quarter.
FedEx Ground average daily package volume increased 3% and
revenue per package grew 5% on increased freight rates and higher
value added services. FedEx SmartPost average daily volume expanded
16% on increased e-commerce and revenue per package rose 7%.
Fourth quarter revenues of
FedEx Freight
upped 7% year over year to $1.40 billion, reflecting
increases of 4% in LTL (less-than-truckload) yield and 4% in
average daily LTL shipments. FedEx Freight recorded an operating
income of $81 million that shot up 93% from $42 million in the
year-ago quarter.
Operating margin improved to 5.8% from 3.2% in the year-ago
quarter. The strong performance was driven by higher operational
efficiency alongside volume and yield growth.
FedEx Services
revenue fell 1.4% year over year to $432 million in the fourth
quarter.
Liquidity
FedEx exited fiscal 2012 with cash and cash equivalents of $2.8
billion compared with $2.3 billion at the end of fiscal 2011.
Long-term debt remained at $1.3 billion compared with $1.7 billion
at the end of May 31, 2011. Capital expenditures for fiscal 2012
amounted to $4.0 billion.
Guidance
FedEx has projected earnings in the range of $1.45 to $1.60 per
share for the first quarter of 2013. For fiscal 2013, the
company expects earnings in the range of $6.90 to $7.40 per share.
In fiscal 2013, FedEx expects increase in employee expenses that
includes $150 million in pension expenses. Capital expenditures are
expected to be approximately $3.9 billion for 2013.
The company intends to focus more on FedEx Ground business,
which continues to generate higher profitability. Additionally, it
aims at lowering its investment on FedEx Express by lowering the
number of aircraft deliveries.
Our Analysis
We believe FedEx is poised to benefit from improved pricing,
volume growth, continued yield improvement and diminishing cost
headwinds. We expect the strong performance at FedEx ground and
FedEx Freight to continue supporting earnings growth for the
company.
However, increased investments, competitive threats from peers
like
United Parcel Service
(
UPS
), lower international demand and economic volatilities could limit
the upside potential of the stock
We are currently reiterating our long-term Neutral rating on
FedEx. The stock retains a Zacks #3 Rank (Hold) for the short
term.
FEDEX CORP (FDX): Free Stock Analysis Report
UTD PARCEL SRVC (UPS): Free Stock Analysis
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