Will FedEx Earnings Transport the Stock Higher?

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FedEx Corporation (NYSE: FDX) will be announcing its Q3 results before the Market opens on Mar. 20.

FedEx provides transportation, business services and e-commerce solutions both domestically and internationally. It has four main divisions FedEx Express, Ground, Freight and Services. Two of its main competitors are United Parcel Service (NYSE: UPS) and CH Robinson Worldwide (NASDAQ: CHRW). UPS offers a wide range of services, like FedEx, while CH Robinson offers freight services.

FedEx's performance so far

The first and second quarter for fiscal year 2013 were lower than every quarter from fiscal year 2012.

Of these earnings FedEx Express contributed 62%. FedEx Express offers domestic and international shipping. Within the United States, this division offers overnight shipping as well as two- and three-day shipping. The international transportation has time sensitive guarantees for 220 countries. This division operates 45,000 vehicles and 650 aircraft.

This division going forward has growth potential in the US and in Asia. 2013 should see slightly better GDP growth with the economy growing roughly 2% in 2013. Additionally, e-commerce companies are offering free shipping. This shipping demand will fuel the growth of FedEx revenue this year. The European market is still uneasy, but more penetration in to the Asian markets will spur revenue growth for FedEx.

FedEx has also made a commitment to switch to natural gas vehicles for 30% of their fleet in the next 10 years. Natural gas vehicles have a lower carbon footprint and lower fuel costs. This will help bring down operating costs in the coming years. There is a capital expenditure associated with new long-distance trucks. The average liquefied natural gas long-haul trucks are $75,000 more than standard diesel trucks.

Competition from UPS and CH Robinson Worldwide

UPS has had a recent increase in revenue but a sharp drop in earnings in 2012.

Fiscal Year

2008

2009

2010

2011

2012

Revenue in millions

 $51,490

 $45,300

 $49,540

 $53,100

 $54,130

Diluted EPS

 $2.94

 $1.96

 $3.33

 $3.84

 $0.83

One of the largest factors that drew earnings lower in 2012 was a weaker global trade. They also had a large charge for their pension services. This is likely a one-time loss, but they have forecasted lower profits for 2013 due to an uneven and uncertain global economy. The same factors affecting the expected growth in UPS are affecting every company in the global logistics and transportation. The fourth quarter of 2012 saw a 7.7% increase in next day shipments. As soon as the pension issues are worked out, the company can focus on building its shipping model in an uncertain economy.

CH Robinson has missed Wall Street earnings expectations for the last 3 quarters. Their revenue has been increasing, but its net margin hasn’t increased. The company has focused primarily on growing its market share. This singular focus hasn’t driven any increase in profitability. The same global economy uncertainties are affecting the growth of CH Robinson as is increased competition.

FedEx earnings release

While there have been uncertainties in the market affecting global shipping and logistics, earnings are still expected to grow in the next year. Don’t expect too much from FedEx next week.

Earnings should be flat at $1.39 per share. They are still recovering from pension expenses and are implementing new natural gas fleets. There shouldn't be any major growth for the short term. In the long term as FedEx penetrates Asian markets and the US e-commerce and consumer shipping continues to grow, FedEx will growth as well.

Austin Higgins is the Principal Consultant for Avant Venture Group. and focuses on building businesses through innovation, growth and investment. Read his company's blog at BuildInvestGrow.com and follow him on Twitter @Austin_Higgins.


Austin Higgins has no position in any stocks mentioned. The Motley Fool recommends FedEx and United Parcel Service. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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