FedEx Express, a subsidiary of FedEx Corp. (FDX) is expanding its “International First” early delivery service to eight new countries. Given the latest addition, FedEx International First early delivery service will be now available in Australia, Austria, Brazil, Canada, Denmark, Japan, Luxembourg and Mexico.
This international early delivery is a time bound service specifically targeted towards morning door-to-door express deliveries. It includes custom clearance and delivery commitment of 1-3 days. So long, the service was available in only 11 countries.
FedEx is boosting its international business through heavy investments to enhance existing routes and make strategic expansion via organic growth as well as acquisitions. The expansion of FedEx’ International First service into eight new markets signifies its focus on improving international revenues and operational efficiency at FedEx Express to support earnings going forward.
The Express segment remains challenged by subdued revenue performance by U.S. domestic package. Apart from the sluggish economy that has weakened market demand, factors like global sales mix shift from priority to deferred shipments also remain detrimental.
Further, demand shift by customers from Express to Ground deliveries to reduce shipping cost also contribute adversely to the company’s Express segment. In such a scenario, looking for greener pasture by expanding internationally underpins the company’s efforts for generating higher income from this segment. For fiscal 2013, the company previously projected Express revenues to increase on the back of international services and yields to improve across all services as it focuses on various yield management programs.
However, we fear that the global economic environment impacted by the European debt crisis, and a slump in Asian growth will remain detrimental to demand growth. In addition, FedEx faces stiff competition from peers like United Parcel Service, Inc. (UPS).
Currently, FedEx retains a Zacks #3 Rank (short-term Hold recommendation). We also reiterate our long-term Neutral rating on the stock.
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