Overnight Sensation
Even with so much material being sent electronically these days, there are still times when a physical object absolutely, positively has to get somewhere overnight. FedEx (NYSE: FDX) has been the leader in this industry for more than 30 years, and it shows no sign of being outdone by its competitors.
Which companies are well-situated to prosper as the economy grows, but also well-established enough to survive an unexpected downturn? Well, Federal Express has largely replaced the Post Office as the key institution for moving physical packages around the United States.
The company continues to derive the lion’s share of its revenue from shipping small parcels, but its forays into other sectors have turned out well. Its acquisition of Kinko’s a few years back has yielded positive synergy.
FedEx enjoys some key advantages over its rivals. United Parcel Service (NYSE: UPS), for example, is struggling to streamline its operations in the face of an aggressive union. Meanwhile, the U.S. Postal Service has all the problems that come with being a slow-moving government bureaucracy, but also has financial issues because the government has tried to make it self-sustaining.
FedEx’s shipping business has three main segments: FedEx Express, which accounted for 60% of the company’s revenue in fiscal 2013, offers worldwide delivery within one to three business days; FedEx Ground (22% of revenue) delivers packages throughout the U.S. and Canada; and FedEx Freight (12%), which ships less-than-truckload (LTL) deliveries.
The company looks well-positioned to turn in a strong performance in the coming holiday season, thanks to the strong growth of online shopping. Many websites are offering incentives, such as free shipping, as they battle to take market share from brick-and-mortar retailers. In response, chains are fighting back by offering similar deals to keep customers coming back to their sites.
In the most recent quarter, revenue of $11.7 billion was up 6% from $11.0 billion the previous year. Operating income of $987 million was up 24% from $795 million last year.
In the longer term, the company should benefit from its ongoing international expansion, particularly in fast-growing markets in the Middle East, Asia and Latin America. For example, FedEx has expanded its service from Asia to markets in the Middle East, which will result in shorter shipping times.
The company continues to roll out its Priority Alert service, which it sells under contract to companies that have critical shipments, such as health care or financial firms.
Under this service, packages are wrapped in bright pink tape to mark their priority status when loading or unloading. These items also receive extra monitoring from a dedicated group of employees who can also provide more accurate estimates of delivery times. As well, Priority Alert Plus, aimed specifically at health care clients, offers services like dry ice replenishment and access to cold storage in order to do a better job of preserving these items.
Demand for this service should continue to grow as more companies move toward a just-in-time inventory model and health care services expand to cater to the needs of an aging population.
FedEx is continuing to lower its costs in a variety of ways. Under its current restructuring plan, it is selling off non-core assets and reducing the size of its workforce. To that end, it began offering voluntary buyouts of up to two years’ pay to some of its U.S. employees.
The company’s price-earnings ratio is now over 40, but that seems justified by the firm’s market position. Its market cap is now closing in on $48 billion. This stock is a buy up to 185.
Tom Scarlett is an investment analyst at Personal Finance.
Which companies are well-situated to prosper as the economy grows, but also well-established enough to survive an unexpected downturn? Well, Federal Express has largely replaced the Post Office as the key institution for moving physical packages around the United States.
The company continues to derive the lion’s share of its revenue from shipping small parcels, but its forays into other sectors have turned out well. Its acquisition of Kinko’s a few years back has yielded positive synergy.
FedEx enjoys some key advantages over its rivals. United Parcel Service (NYSE: UPS), for example, is struggling to streamline its operations in the face of an aggressive union. Meanwhile, the U.S. Postal Service has all the problems that come with being a slow-moving government bureaucracy, but also has financial issues because the government has tried to make it self-sustaining.
FedEx’s shipping business has three main segments: FedEx Express, which accounted for 60% of the company’s revenue in fiscal 2013, offers worldwide delivery within one to three business days; FedEx Ground (22% of revenue) delivers packages throughout the U.S. and Canada; and FedEx Freight (12%), which ships less-than-truckload (LTL) deliveries.
The company looks well-positioned to turn in a strong performance in the coming holiday season, thanks to the strong growth of online shopping. Many websites are offering incentives, such as free shipping, as they battle to take market share from brick-and-mortar retailers. In response, chains are fighting back by offering similar deals to keep customers coming back to their sites.
In the most recent quarter, revenue of $11.7 billion was up 6% from $11.0 billion the previous year. Operating income of $987 million was up 24% from $795 million last year.
In the longer term, the company should benefit from its ongoing international expansion, particularly in fast-growing markets in the Middle East, Asia and Latin America. For example, FedEx has expanded its service from Asia to markets in the Middle East, which will result in shorter shipping times.
The company continues to roll out its Priority Alert service, which it sells under contract to companies that have critical shipments, such as health care or financial firms.
Under this service, packages are wrapped in bright pink tape to mark their priority status when loading or unloading. These items also receive extra monitoring from a dedicated group of employees who can also provide more accurate estimates of delivery times. As well, Priority Alert Plus, aimed specifically at health care clients, offers services like dry ice replenishment and access to cold storage in order to do a better job of preserving these items.
Demand for this service should continue to grow as more companies move toward a just-in-time inventory model and health care services expand to cater to the needs of an aging population.
FedEx is continuing to lower its costs in a variety of ways. Under its current restructuring plan, it is selling off non-core assets and reducing the size of its workforce. To that end, it began offering voluntary buyouts of up to two years’ pay to some of its U.S. employees.
The company’s price-earnings ratio is now over 40, but that seems justified by the firm’s market position. Its market cap is now closing in on $48 billion. This stock is a buy up to 185.
Tom Scarlett is an investment analyst at Personal Finance.