FedEx Corporation
(
FDX
) - the leader in global express delivery services - reported
third quarter fiscal 2013 results, ending Feb 28.
Quarterly adjusted earnings of $1.23 per share missed the Zacks
Consensus Estimate of $1.38 and decreased from the year-ago
earnings of $1.55. Results were impacted by softness in the
international air freight markets, industry overcapacity that
resulted in low yields as well as inexpensive services chosen by
customers.
Total revenue for the third quarter climbed 4% year over year to
$10.95 billion, and surpassed the Zacks Consensus Estimate of
$10.83 billion.
Segment Results
Quarterly revenues at
FedEx Express
were $6.70 billion, up 2% year over year. The growth was driven
by acquisitions and growth in FedEx Trade Networks, offset by a
drop in the core express revenues.
Operating income was down 66% year over year at $118.0 million,
resulting in an operating margin of 1.8%, down 350 bps from 5.3%
in the year-ago quarter. The negative impact of lower volumes due
to demand shift toward international services with lower
profitability continue to affect the segment's operating income.
In addition, lesser number of operating days, higher depreciation
and pension expenses also aggravated the decline.
The FedEx International Priority (IP) average daily package
volume increased 8% for the quarter, while revenue per package
(yield) decreased 4% due to the unfavorable impact of lower
rates. The U.S. domestic revenue per package rose 1% year over
year supported by 1% growth in the U.S. domestic average daily
package volume. The revenue growth was primarily attributable to
higher freight rates that offset lower fuel surcharges.
FedEx Ground
revenues increased 11% year over year to $2.74 billion
attributable to volume growth. Although operating income remained
flat year over year at $467 million, operating margin dropped 180
bps to 17.0%. The growth on higher volumes was negated by higher
purchased transportation expenses and steeper network expansion
costs.
FedEx Ground average daily package volume increased 10% driven by
growth in B2B and FedEx Home Delivery services. Revenue per
package grew 1% on increased freight rates and a hike in
residential surcharges. FedEx SmartPost average daily volume
expanded 26% on increased e-commerce and net revenue per package
decreased 1% because of higher postal rates.
FedEx Freight
revenues remained unchanged from the prior-year quarter at $1.23
billion, reflecting growth of 2% in LTL (less-than-truckload)
yield and 1% hike in average daily LTL shipments. FedEx Freight
recorded an operating income of $4 million compared to a loss of
$1 million in the last-year quarter. The growth was powered by
higher yield, volume and operational efficiencies. Operating
margin was 0.3%.
FedEx Services
revenues fell 5% year over year to $380.0 million in the third
quarter.
Liquidity
FedEx exited the third quarter with cash and cash equivalents of
$3.37 billion compared with $2.84 billion at the end of fiscal
2012. Long-term debt stood at $1.99 billion compared with $1.25
billion at the end of fiscal 2012. Capital expenditure amounted
to $542.0 million compared with $729.0 million in third quarter
fiscal 2012.
Guidance
For the fourth quarter of fiscal 2013, FedEx projected adjusted
earnings per share in the range of $1.90 to $2.10. For fiscal
2013, the company guides its earnings per share in the range of
$6.00 to $6.20. The company's capital expenditure guidance is
pegged at $3.6 billion, lower than $3.9 billion projected
earlier.
In addition, the company expects to incur expenses under its
voluntary buyout program. The company expects pre-tax expenses
under this voluntary buyout program to range between
approximately $450 million and $550 million, or 89 cents to $1.09
per diluted share.
Our Analysis
We believe that FedEx is poised to benefit from global expansion
and increased e-commerce activity. The opening of more service
centers and network realignment to match the current demand level
are also expected to enhance the overall performance level of the
company.
Last month, the company launched a new business tool to aid
e-commerce customers in their shipping process. The new system,
fedex.com Integration Manager is a Web-based tool that connects
with platforms like
eBay Inc.
(
EBAY
),
Amazon.com Inc.
(
AMZN
) and
Google Inc.
(
GOOG
). The seamless connection allows enterprises running multiple
online stores to simplify their selling and shipment processes.
Nevertheless, the effects of the sluggish economic environment
have cast a shadow over the near-term outlook of the company.
Further, competitive threats, legal hassles, unionized workforce
and rising pension headwinds will likely limit the upside
potential of the stock. Currently, FedEx retains a Zacks Rank #3
(Hold).
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