Before the opening bell,
FedEx Corporation
(
FDX
), the world's second-largest package delivery company, reported
third quarter fiscal 2012 adjusted earnings of $1.55 per share. The
quarter's earnings surpassed the Zacks Consensus Estimate of $1.36
and the year-ago earnings of 81 cents.
The outperformance was attributable to strong yields, record
holiday shipping and a remarkable performance by FedEx Ground.
Adjusted earnings exclude 10 cents per share of special items
related to FedEx Express legal reserve reversal.
Total revenue climbed 9% year over year to $10.56 billion but
missed the Zacks Consensus Estimate of $10.63 billion.
Operating income jumped 107% year over year to $813 million in
the reported quarter. The year-over-year performance was credited
to continued healthy performance by FedEx Ground and improved
results at FedEx Freight. Operating margin also showed an increase
of 360 basis points (bps) to 7.7%from 4.1% in the year-ago
quarter.
Operating expenses rose 5.2% year over year to $9.75 billion,
mainly due to a 17.5% rise in the fuel cost.
Segment Results
FedEx Express
revenue was $6.54 billion in the reported quarter, up 8% year over
year. Operating income shot up 96% year over year to $349 million,
resulting in a 240 bps expansion in operating margin to 5.3%. FedEx
benefitted from the fuel surcharge timing lag and the reversal of a
$66 million reserve associated with litigation.
The FedEx International Priority (
IP
) average daily package volume dipped 1% year over year while
revenue per package (yield) grew 5% on higher fuel surcharges and
package weights. The U.S. domestic revenue per package rose 9% year
over year despite a 4% decline in the U.S. domestic average daily
package volume.
FedEx Ground
revenue increased 14% year over year to $2.48 billion attributable
to package volume growth at FedEx Ground as well as FedEx
SmartPost. Operating income spiked 43% year over year to $465
million, resulting in operating margin of 18.8% compared with 14.9%
in the year-ago quarter.
FedEx Ground average daily package volume increased 5% and
revenue per package grew 8%. FedEx SmartPost average daily volume
expanded 13% and revenue per package rose 5%.
FedEx Freight
revenue upped 10% year over year to $1.23 billion, reflecting
increases of 6% in LTL (less-than-truckload) yield and 2% in
average daily LTL shipments. FedEx Freight recorded an operating
loss of $1 million compared with $110 million in the year-ago
quarter.
Operating margin improved to (0.1%) from (9.8%) in the year-ago
quarter. The strong performance was driven by operational
efficiency from the combination of FedEx Freight and FedEx National
LTL completed last year.
FedEx Services
revenue inched up 0.01% year over year to $401 million in the third
quarter.
Liquidity
FedEx exited the third quarter with cash and cash equivalents of
$2.04 billion compared with $2.33 billion at the end of fiscal
2011. Long-term debt dropped to $1.25 billion from $1.67 billion at
the end of May 31, 2011.
Looking Ahead
FedEx has projected earnings in the range of $1.75 to $2.00 per
share for the fourth quarter of 2012. The mid-point ($1.87) is
lower than the current Zacks Consensus Estimate of $1.98.
Based on rising fuel prices and moderate economic growth, FedEx
expects its fiscal 2012 earnings in the band of $6.35-$6.60 per
share. The mid-point ($6.47) is above the current Zacks Consensus
Estimate of $6.38. Including the FedEx Express legal reserve
reversal, earnings are expected to be $6.43-$6.68 per share.
FedEx continues to expect capital spending of $4.2 billion for
fiscal 2012.
Our Take
Despite a moderate economic growth, we believe earnings and
revenue will continue improving going forward on strong demand,
better pricing, continued yield (revenue per package) improvement,
industrial production growth and diminishing cost headwinds.
Further, solid Express growth, market share gains at Ground and a
profitable Freight business from network restructuring should lead
to earnings improvement.
However, increased investments, competitive threats from
United Parcel Service Inc.
(
UPS
), unionized workforce and steeper fuel prices could limit the
upside potential of the stock.
We are maintaining our long-term Neutral recommendation 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 Report
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