FedEx successfully copes with difficulties
FedEx Corporation (FDX) has presented a press release of quarterly financial statements. According to this document, the revenue of the transport company exceeded the average expectations of analysts by 0.8%, reaching $23.6 billion, and adjusted EPS fell short of consensus and amounted to $4.59.
Despite the difficult weather and high morbidity of personnel, including representatives of the flight crew, FedEx revenue for the quarter increased by 9.8% YoY, slightly exceeding market expectations.
FedEx Freight was the leader in terms of revenue growth. FedEx Ground took the second place with a result of +0.3%. Revenue of the FedEx Express segment increased by 6% over the year. More modest dynamics are because of a shortage of labor because of the outbreak of COVID-19, because of which they did not carry delivery out for several days.
They forced company to reduce the volume of air travel due to staff shortages: in January alone, over 15% of the crews could not go to work because of illness. The management assessed the weather in the reporting quarter as more favorable than in the same period a year earlier.
FedEx management estimates losses from coronavirus for operating profit at $350 million, which was offset by high demand for services and flexible pricing, as well as compensation for rising fuel prices. The average daily volume of FedEx Express parcel processing fell by 11% over the year.
The operating profit margin of FedEx in the reporting period increased by 90 bps, to 5.6%, primarily because of FedEx Express and Freight, whose indicator increased by 30 and 8.5 p. p — – to 4.6% and 15%, respectively. December turned out to be the most successful in terms of financial receipts in the entire history of the company.
Due to increased transportation and labor costs, the profitability of FedEx Ground for the year fell by 1.5 percentage points, to 7.3%. company continues to fix the costs of integrating TNT services into FedEx Express processes. The negative effect of these costs for EPS was $0.59. European market is very important for the company: today FedEx operates 350 flights a week here, serving 42 airports, and TNT makes 600 flights from 59 airports.
It will achieve the synergistic effect following the completion of the physical merger of the companies in April 2022 by reducing the total number of flights to 825. FedEx has withdrawn from the markets of Russia, Belarus and Ukraine, but the share of its revenue in these countries is insignificant, therefore this step will not affect further operational results. However, in case of a complete ban on flights over the territory of the Russian Federation, FedEx may face some difficulties in transporting goods from Europe to India, China and Japan and back.
At present, it is not possible to assess the impact of this factor. Management maintains a benchmark for adjusted EPS (excluding pension plans) between $20.5-21.5. The Factset consensus is closer to the lower boundary of this corridor. Considering the current operating results and the potential improvement in profitability, we have set a fair price for FedEx shares at $277, which means a growth potential of about 22%.
