FedEx

  • Package delivery company FedEx reported fourth quarter results which beat expectations, as corona-driven demand for deliveries surged.

  • Revenue fell   2.2% to $17.4 billion in the fourth quarter from $17.8 billion a year earlier. US   domestic residential volumes rose to 72% compared to 56% a year earlier.   Operating income came in at $907 million, a 47.3% plunge from the year-ago   period. Operating margins were squeezed, falling from 9.6% to 5.2% due to   costly residential deliveries. Residential e-commerce deliveries involve more   miles per route, and fewer packages per stop.

  • FedEx Ground, which handles more home deliveries,   reported a 20% revenue jump for the quarter but a 17% drop in operating   income. Whereas FedEx Express, which services commercially driven drop-offs,   fell 10% and operating income cratered 56%. The company says   business-to-business shipments have since improved. According to Bloomberg   (see graph below), warehousing, couriers, and delivery companies have been   the growth industries of the pandemic.

  • The company also incurred a $125 million increase   in operating costs related to personal protective equipment, as well as more   security and cleaning services to protect workers and clients. Operating   results were also impacted by one less operating weekday, and higher bad debt   expenses.

  • Adjusted profit for Q4 fell by nearly 50% to $663   million, or $2.53 per share.

  • For the full-year Revenue was only 0.7% lower at   $69.2 billion. However, operating income tumbled 40.3% to $3.12 billion and   margins fell to 4.5% from 7.5%. Net profit was similarly affected coming in   40% lower at $2.49 billion or an adjusted $9.50 a share. Capital expenditure in   2020 came in at $5.9 billion, and is expected to be $1 billion lower in 2021.

  • The company   is still struggling to rebuild after splitting with Amazon.com, who was large   customer, and a costly consolidation of TNT Express in Europe. FedEx is not providing an earnings forecast for fiscal 2021 as the   timing and pace of an economic recovery are uncertain.

  • The company embarked on massive capex over the last 2 years, the payoff has been scuppered somewhatby Covid-19. FedEx has also taken on a substantial amount of debt in an attempt to compete with the likes of Amazon.com and UPS. Margins are being compressed and free cash flows have dwindled over the past 5 years, even turning negative recently. FedEx shares are marginally higher year-to-date, and down 25% over the past three years. Our preferred pick in the sector is Amazon.com.

FedEx