Forget the Recent Past, FedEx Will Deliver
Tim is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It wasn’t but a week or so back FedEx (NYSE: FDX) was flying high with a stock price over $90 a share and gas prices – always a concern for the air delivery leader – dropping to levels we haven’t seen for seven months. Then our friends across the pond started impacting global markets again and it seemed no one was immune – even a company as financially sound as FedEx. And the selling pressure – particularly for investors on the sidelines – should be cause for celebration.
Our last look at FedEx was in mid-March as the company was coming off an absolutely stellar quarter. Much of what drove fiscal Q3 results is still applicable today – a strong consumer spending environment and a slowly improving economic environment -- domestically anyway -- that will boost commercial sales. Add to that what many expect to be a surprisingly affordable summer of gas, and things are looking good for FedEx.
The Past Month
The continued expansion throughout Latin America – a burgeoning market for companies in a host of industries – was ramped up with last week’s announced acquisition of long-time Brazilian partner Rapidao Corneta Logistica e Transportes (say that three times fast!). The Latin American expansion comes on the heels of FedEx purchasing TATEX, a leading logistics company in France. While not huge – TATEX generates about EUR150 million annually in revenue – it will also help to expand operations in the Mid East and African markets.
These – along with past and future international acquisitions – will help to boost what is already a fairly sound mix of domestic and international revenue lines. FedEx has room to grow outside the U.S. and these moves reinforce CEO David Bronczek’s commitment to making it happen.
Tuesday’s announcement of a dividend hike did little to stem the ebb tide – nor should it have. A $0.01 increase on top of what is historically a meager dividend to begin with doesn’t warrant any hoopla. But that’s right in line with FedEx philosophy – the company has long preferred maintaining a strong balance sheet in lieu of paying dividends. And with just over $2 billion in ready cash and a very manageable debt load, FedEx certainly has that. Opponents would argue that UPS (NYSE: UPS) and their 3.13% dividend is a more attractive alternative – maybe. Depends what you’re investing for, growth or income?
Sure FedEx doesn’t – nor are they likely to in the near future – provide shareholders with any income worth mentioning. But from a growth perspective FedEx is significantly cheaper than UPS right now, by almost any measure. Based on earnings multiples FedEx is about 30% less than their rival, a mere fraction of the cost based on sales and both operating and profit margins have grown almost exponentially vs. last year.
The company also retired old aircraft in fiscal Q4 and that will impact results to the tune of an expected $0.26 a share charge. But this is right in step with the company’s streamlining of overhead in an effort to better align the fleet with expected delivery volumes. In other words, it’s all part of the expense management plan Mr. Bronczek has said will include fewer jobs (by attrition primarily) in the coming year and less focus on the company’s domestic express air business -- one of the few less-than-bright spots last quarter.
So what about timing? The FedEx fiscal year-end earnings call is on the horizon – come June 19. There’s always a risk of getting in prior to an earnings announcement -- what if the company misses analyst guesstimates? That’s a legitimate concern and no one would fault an investor for sitting on the sidelines until after the news. But don’t be surprised when FedEx nails it and the price pressure the stock has been under turns out to be a blessing for those that get in now.
timbrugger has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend FedEx. 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.If you have questions about this post or the Fool’s blog network, click here for information.