FedEx Corporation (FDX) – the leader in global express delivery services – reported fourth quarter and fiscal 2013 results.
Quarterly adjusted earnings of $2.13 per share that breezed passed the Zacks Consensus Estimate of $1.96 and improved from the year-ago adjusted earnings of $1.99. The strong earnings performance was backed by revenue growth at FedEx Ground and impressive margin performance at FedEx Freight.
Total revenue for the fourth quarter was $11.4 billion versus $11.0 billion in the fourth quarter of fiscal 2012 and in line with the Zacks Consensus Estimate.
For fiscal 2013, the company delivered adjusted earnings of $6.23 (down from $6.59 a year ago) upon adjusted revenues of $44.3 billion (up from $42.7 billion in the prior year).
Segment Results
Quarterly revenues at FedEx Express were $6.98 billion, up 3% year over year. Growth was driven by acquisitions and expanded FedEx Trade Networks, offset by lower fuel surcharges.
Operating income was up 11% year over year at $460.0 million in the fourth quarter, resulting in an operating margin of 6.6%, up 50 bps from 6.1% in the year-ago quarter. The improvement was aided by the favorable impact of capacity reductions, time lags related to fuel surcharge, and other cost reduction initiatives.
The FedEx International Priority (IP) average daily package volume increased 2% for the quarter and revenue per package (yield) increased 1% due to the unfavorable impact of lower rates.
FedEx Ground revenues increased 12% year over year to $2.78 billion in the fourth quarter attributable to volume growth. Operating income was up 13% year over year at $557 million and operating margin increased 10 bps to 20.1%. Higher volumes and revenue per package was partially negated by intercompany costs related to business realignment programs.
FedEx Ground average daily package volume increased 10% driven by increased eCommerce activities. Revenue per package grew 2%. FedEx SmartPost average daily volume expanded 25% and net revenue per package decreased 7% because of higher postal rates.
FedEx Freight revenues were down 1% year over year to $1.39 billion in the fourth quarter, reflecting a drop of 3% in LTL (less-than-truckload) shipments. Yield was, however, up by 1% due to improvement in FedEx Freight cost structures. The segment recorded operating income of $81 million, flat year over year. Operating margin was 5.8%, which also remained unchanged on a year-over-year basis.
FedEx Services revenues fell 6% year over year to $406.0 million in the fourth quarter.
Liquidity
FedEx exited the year with cash and cash equivalents of $4.92 billion compared with $2.84 billion at the end of fiscal 2012. Long-term debt stood at $2.7 billion compared with $1.25 billion at the end of the prior year. Capital expenditure amounted to $3.4 billion compared with $4 billion in fiscal 2012.
Guidance
For fiscal 2014, FedEx projected adjusted earnings per share growth of 7% to 13%. The company’s capital expenditure guidance is pegged at $4 billion.
Under the voluntary buyout program, the company expects 25% of its employees to accept voluntary retirement in fiscal 2014. About 40% of the total employee strength has already left in fiscal 2013.
Given a downtrend in international services with customers mainly seeking cost effective international travel, the company expects to cut down capacity between Asia and U.S. lanes.
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.
Further, the new system, fedex.com Integration Manager is expected to aid e-commerce customers in their shipping process. The system connects with platforms like eBay Inc. (EBAY), Amazon.com Inc. (AMZN) and Google Inc. (GOOG).
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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