) - the leader in global express delivery services - reported
second quarter fiscal 2014 results.
Quarterly adjusted earnings of $1.57 per share missed the Zacks
Consensus Estimate of $1.65 but improved from the year-ago
adjusted earnings of $1.39. Despite the challenges in the macro
economy, the company delivered strong earnings year over year on
the back of higher revenues at the Ground and Freight segments
coupled with cost control efforts at the Express segment.
Total revenue for the second quarter was $11.4 billion, 3% higher
than $11.1 billion in the second quarter of fiscal 2013 but below
the Zacks Consensus Estimate of $11.5 billion.
Operating income increased 15% year over year to $827 million,
resulting in an operating margin of 7.3%, up 80 basis points. The
growth was driven by higher yield and cost control at FedEx
Express. Total operating expenses grew 2% year over year at $10.6
Quarterly revenues at
were $6.84 billion, down from $6.86 billion in the year-ago
quarter. The revenue decline was due to lower express freight
revenues and lower fuel charges.
Operating income was up 42% year over year at $326.0 million in
the second quarter, resulting in an operating margin of 4.8%, up
140 bps from 3.4% in the year-ago quarter. The improvement was
aided by lower pension expenses, higher yields and lower net
The FedEx International Priority average daily package volume
decreased 5% year over year and revenue per package (yield)
revenues increased 10% year over year to $2.85 billion in the
second quarter. Operating income was up 3% year over year at $424
million but operating margin decreased 100 bps to 14.9% owing to
a delayed holiday shipping season.
FedEx Ground average daily package volume grew 8% year over year
driven by commercial business and business-to-business and FedEx
Home Delivery services. Revenue per package increased 2% given
rate hikes and higher residential surcharges. FedEx SmartPost
average daily volume expanded 9% due to higher e-commerce
activities. Revenue per package decreased 3% because of higher
postal rates and lower fuel surcharges, which dampened the
positive impact of rate increases.
revenues were up 4% year over year at $1.43 billion in the second
quarter, reflecting a rise of 4% in LTL (less-than-truckload)
average daily shipment. Yield was down 1% year over year. The
segment recorded operating income of $77 million, reflecting an
increase of 1% year over year. Operating margin was 5.4%, down 10
basis points from the year-ago quarter.
revenues fell 3% year over year to $391.0 million in the second
FedEx exited the second quarter of fiscal 2014 with cash and cash
equivalents of $3.9 billion compared with $2.5 billion at the end
of second quarter fiscal 2013. Long-term debt was $2.7 billion,
unchanged from the fiscal 2013 level. Capital expenditure
amounted to $1.7 billion at the end of second quarter compared
with $1.9 billion at the end of the year-ago quarter.
During the reported quarter fiscal 2014, FedEx repurchased 7.2
million shares bringing the total share buyback to 10 million
shares. The company has also initiated a new share repurchase
program of 32 million shares. FedEx expects the second quarter
share repurchase to favorably impact earnings per share by 4
For fiscal 2014, FedEx raised its earnings per share growth
projection to 8% to 14% from 7% to 13%. The company's capital
expenditure guidance remains unchanged from the previously
estimated $4 billion.
We expect FedEx to register earnings momentum and enjoy growth
from its long-term expansion opportunities. The company is
concentrating on network realignment to match the current demand
level and improve its performance. FedEx also aims to spread its
services across the U.S., Canada and Mexico and capitalize on
potential business opportunities in the NAFTA (North American
Free Trade Agreement) market for a competitive advantage over the
United Parcel Service, Inc.
Expeditors International of Washington Inc.
Radiant Logistics, Inc.
Nevertheless, the effects of a sluggish economic environment have
clouded the near-term outlook of the company. Further,
competitive threats, legal hassles, unionized workforce and
pension headwinds could limit the upside potential of the stock.
Currently, FedEx retains a Zacks Rank #2 (Buy).
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