|
Related Topics |
|
We take a look at the full-year financial results as published by courier and logistics group FedEx. Has the economic growth in the US helped the group or are they struggling like their competitor UPS to grow profits?
|
|
About Fedex (NYSE:FDX)
FedEx Corp. is committed to produce superior financial returns for its shareowners by providing high value-added logistics, transportation, and related business services through focused operating companies that compete collectively, operate independently, and manage collaboratively.
The FedEx strategy to compete collectively and operate independently provides a competitive advantage for our company. Our broad portfolio of services allows us to meet the needs of our customers, most of whom use services from two or more of our operating companies.
FedEx has grown tremendously since its first night of operations in 1973. Now FedEx serves more than 220 countries and territories and continues to offer new products and services around the globe. The image below shows a breakdown of revenue earned by FedEx various operating entities which include:
The FedEx strategy to compete collectively and operate independently provides a competitive advantage for our company. Our broad portfolio of services allows us to meet the needs of our customers, most of whom use services from two or more of our operating companies.
FedEx has grown tremendously since its first night of operations in 1973. Now FedEx serves more than 220 countries and territories and continues to offer new products and services around the globe. The image below shows a breakdown of revenue earned by FedEx various operating entities which include:
- FedEx Express: FedEx Express invented express transportation and remains the industry’s global leader, providing rapid, reliable, time-definite delivery to more than 220 countries and territories, connecting markets that comprise more than 99% of the world’s gross domestic product. Unmatched air route authorities and transportation infrastructure, combined with leading-edge information technologies, make FedEx Express the world’s largest express transportation company, providing fast and reliable delivery of more than 6 million shipments and 29 million pounds of freight each business day. The FedEx Express business segment financial results include TNT Express.
- FedEx Ground: FedEx Ground provides low-cost, day-certain service to any business address in the U.S. and Canada, as well as residential delivery to 100% of U.S. residences through its FedEx Home Delivery® Service.
- FedEx Freight: FedEx Freight is a leading North American provider of less-than-truckload (LTL) freight services across all lengths of haul, offering: FedEx Freight Priority, when speed is critical to meet a customer’s supply chain needs; and FedEx Freight Economy, when a customer can trade time for cost savings. FedEx Freight also offers freight delivery service to most points in Puerto Rico and the U.S. Virgin Islands
- FedEx Services: FedEx Services provides sales, marketing, information technology, communications, customer service, technical support, billing and collection services, and certain back-office functions that support our transportation segments. The FedEx Services business segment includes FedEx Office and Print Services, Inc., which provides document and business services and retail access to our package transportation businesses. Additionally, FedEx Logistics provides complementary services through the operations of FedEx Trade Networks Transport & Brokerage, FedEx Cross Border, FedEx Supply Chain, FedEx Custom Critical, and FedEx Forward Depots.
FedEx Corp. (NYSE: FDX) provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce and business services. With annual revenues of $70 billion, the company offers integrated business solutions through operating companies competing collectively and managed collaboratively, under the respected FedEx brand.
Consistently ranked among the world's most admired and trusted employers, FedEx inspires its more than 450,000 team members to remain focused on safety, the highest ethical and professional standards and the needs of their customers and communities.
Consistently ranked among the world's most admired and trusted employers, FedEx inspires its more than 450,000 team members to remain focused on safety, the highest ethical and professional standards and the needs of their customers and communities.
So to the numbers we go
The following financial results were reported by Fedex in their 1st quarter 2019 earnings report.
- Revenue: $69.693 billion (up 6.5% from $65.450 billion in previous year)
- Total operating expenses: $65.227 billion (up 6.6% from $61.178 billion in previous year)
- Operating income: $4.466 billion (up 4.5% from $4.272 billion in previous year)
- Net income: $540 million (down 89% from $4.572 billion in previous year)
- Diluted earnings per share: $2.06 down (87.9% from $16.79 a share in the previous year)
- The large decline in net income is largely due to losses in the market to market retirement plan of the group which saw a loss of nearly $4billion. If this is exluded from the earnings calculate the group's earnings would have remained fairly similar to that of the prior year.
- Operating margin: 6.4% down slightly from 6.5% in the previous year
- Dividend per share: $2.60 for full year
- Dividend yield: 1.67%
- Cash and equivalents: $2.319 billion down 28.97% from $3.265 billion in previous year
- Cash and equivalents per share: $8.85
- Cash generated from operations: $5.613 billion
- Cash generated from operations per share: $21.42
- Common equity/stockholders invesment per share: $67.77 a share. So trading at 2.28 times its net asset value per share. Not uncommon for operating entities to trade at multiples of 2 or 3 times their net asset value. Net asset value is total assets minus total liabilities.
So any comments from Fedex management on the results?
The following commentary on the financial results by FedEx management was obtained from their results release.
“Fiscal 2019 was a year of both challenge and change for FedEx,” said Frederick W. Smith, FedEx Corp. chairman and CEO. “We are proud of our team members, who are responding with positive actions and innovative solutions that will make FedEx even stronger and more successful in the future. FedEx enters fiscal 2020 with a sharp focus on extending our lead as the premier global transportation and logistics company and on making the necessary investments today to capture the significant market opportunities we see for the future. These actions include enhancing FedEx Ground capabilities, speed and efficiency; improving FedEx Express hub automation; modernizing our FedEx Express air fleet; integrating TNT Express; and reducing unit costs and increasing productivity.”
Fourth quarter operating income was negatively affected by lower FedEx International Priority package and freight revenues at FedEx Express, higher costs at FedEx Ground and business realignment costs primarily associated with the U.S.-based voluntary employee buyout program. Partially offsetting these factors were the benefits from U.S. volume growth, increased revenue per shipment at FedEx Freight and FedEx Ground, lower variable incentive compensation expenses and a favorable net impact of fuel at all transportation segments.
The higher FedEx Ground costs were primarily related to increased purchased transportation rates and the January launch of year-round, six-day-per-week operations. Last year’s results for FedEx Express included an $85 million gain on the sale of a non-core business of TNT Express. The pre-tax noncash mark-to-market (MTM) retirement plan accounting adjustment of a net $3.9 billion loss was due to a lower discount rate, changes in actuarial estimates and lower-than-expected asset returns. The discount rate decrease (42 basis points) contributed $1.8 billion to the net loss.
“Fiscal 2019 was a year of both challenge and change for FedEx,” said Frederick W. Smith, FedEx Corp. chairman and CEO. “We are proud of our team members, who are responding with positive actions and innovative solutions that will make FedEx even stronger and more successful in the future. FedEx enters fiscal 2020 with a sharp focus on extending our lead as the premier global transportation and logistics company and on making the necessary investments today to capture the significant market opportunities we see for the future. These actions include enhancing FedEx Ground capabilities, speed and efficiency; improving FedEx Express hub automation; modernizing our FedEx Express air fleet; integrating TNT Express; and reducing unit costs and increasing productivity.”
Fourth quarter operating income was negatively affected by lower FedEx International Priority package and freight revenues at FedEx Express, higher costs at FedEx Ground and business realignment costs primarily associated with the U.S.-based voluntary employee buyout program. Partially offsetting these factors were the benefits from U.S. volume growth, increased revenue per shipment at FedEx Freight and FedEx Ground, lower variable incentive compensation expenses and a favorable net impact of fuel at all transportation segments.
The higher FedEx Ground costs were primarily related to increased purchased transportation rates and the January launch of year-round, six-day-per-week operations. Last year’s results for FedEx Express included an $85 million gain on the sale of a non-core business of TNT Express. The pre-tax noncash mark-to-market (MTM) retirement plan accounting adjustment of a net $3.9 billion loss was due to a lower discount rate, changes in actuarial estimates and lower-than-expected asset returns. The discount rate decrease (42 basis points) contributed $1.8 billion to the net loss.
Management outlook for the company
The group provided the following outlook for the group in their 2020 fiscal year.
During fiscal 2020, operating income at FedEx Ground and FedEx Freight is expected to increase due to higher revenues. At FedEx Express, macroeconomic weakness and trade uncertainty, continued mix shift to lower-yielding services and a strategic decision to not renew a customer contract will negatively impact operating income.
FedEx is unable to forecast the fiscal 2020 year-end MTM retirement plan accounting adjustment. As a result, the company is unable to provide a fiscal 2020 earnings per share or effective tax rate (ETR) outlook on a GAAP basis.
For fiscal 2020, FedEx forecasts:
Total TNT Express integration program expenses through fiscal 2021 are now estimated to be approximately $1.7 billion, of which $350 million is expected to be incurred in fiscal 2020. These forecasts assume moderate U.S. economic growth, the company’s current fuel price expectations, no further weakening in international economic conditions from the company’s current forecast and no additional adverse developments in international trade policies and relations. FedEx’s ETR and earnings per share outlooks are based on the company’s current interpretations of the Tax Cuts and Jobs Act (TCJA) and related regulations and guidance, and are subject to change based on future guidance, as well as FedEx’s ability to defend its interpretations.
During fiscal 2020, operating income at FedEx Ground and FedEx Freight is expected to increase due to higher revenues. At FedEx Express, macroeconomic weakness and trade uncertainty, continued mix shift to lower-yielding services and a strategic decision to not renew a customer contract will negatively impact operating income.
FedEx is unable to forecast the fiscal 2020 year-end MTM retirement plan accounting adjustment. As a result, the company is unable to provide a fiscal 2020 earnings per share or effective tax rate (ETR) outlook on a GAAP basis.
For fiscal 2020, FedEx forecasts:
- A low-single-digit percentage point increase in diluted earnings per share prior to the year-end MTM retirement plan accounting adjustment compared with fiscal 2019’s earnings of $13.25 per diluted share prior to the year-end MTM retirement plan accounting adjustment;
- A mid-single-digit percentage point decline in diluted earnings per share prior to the year-end MTM retirement plan accounting adjustment and excluding estimated TNT Express integration expenses compared with fiscal 2019’s adjusted earnings of $15.52 per diluted share;
- A higher ETR in the range of 23-25% prior to the year-end MTM retirement plan accounting adjustment; and
- Capital spending of $5.9 billion.
Total TNT Express integration program expenses through fiscal 2021 are now estimated to be approximately $1.7 billion, of which $350 million is expected to be incurred in fiscal 2020. These forecasts assume moderate U.S. economic growth, the company’s current fuel price expectations, no further weakening in international economic conditions from the company’s current forecast and no additional adverse developments in international trade policies and relations. FedEx’s ETR and earnings per share outlooks are based on the company’s current interpretations of the Tax Cuts and Jobs Act (TCJA) and related regulations and guidance, and are subject to change based on future guidance, as well as FedEx’s ability to defend its interpretations.
“Our fiscal 2020 performance is being negatively affected by continued weakness in global trade and industrial production, especially at FedEx Express,” said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer. “While we are adjusting our costs to mitigate revenue weakness and market shifts, we will continue to invest in areas that expand our capabilities, improve our long-term efficiencies and reduce our cost to serve.”
FedEx (NYSE: FDX) share price history
The FedEx share price has performed pretty well over the last decade or so, with the share price increasing from well below $50 a share to trade at its current $155 odd a share. This is in stark contrast to their rival UPS who's share price has been struggling and it basically in the same spot it was 5 years ago. See more regarding FedEx rival UPS share price here.
FedEx share price history
So should you buy FedEx shares?
Well considering the group itself is saying that their business is being negatively affected due to continued weakness in global trade and industrial production one wonders if now is the right time to buy the company's shares? Or does one wait a bit for the full impact of the slowdown in global trade (partly driven by the trade war between the USA and China) manifests itself in FedEx's financial results. So lets take a look at what we think FedEx shares are worth.
FedEx (NYSE: FDX) stock valuation
If one looks past the $4 billion mark to market losses incurred in their pension and retirement assets that was accounted for int heir books, then FedEx earnings remained relatively flat during the 2019 fiscal year compared to the 2018 fiscal year, and this despite a growing and strong US economy. Margins are starting to come under pressure with their operating margin declining slightly and this trend will continue if the trading environment remains challenging and competition remains strong.
Based on the financial results, the guidance provided we value FedEx shares at $212.50 a share. This will place the group on a forward PE ratio of 12.47 and a dividend yield of 1.22%. The PE not being that demanding at $212.50 a share but the group can surely look to start paying a healthier dividend in their 2020 fiscal year compared to the 2019 fiscal year (finances allowing of course). The group faces some head winds but they own a strong brand and company and we believe in the long term they offer excellent value to investors