FedEx (FDX) Knocks Earnings Estimates Out of the Park as Profits Soar 76%

Despite the current European gloom weighing down global markets, FedEx FDXsoundly beat earnings this week, suggesting that holiday season numbers just might bring some joy after all. FedEx, one of the world's largest shipping services, is considered an important bellwether of the global economy, as its shipment volume is indicative of the relative health of retail businesses and consumer sentiment. On Thursday, the Memphis, Tennessee-based company posted earnings of $1.57 per share, or $497 million, a vast improvement over the 89 cents per share, or $283 million, it posted a year earlier.

Analysts had been expecting a profit of $1.53 per share. Revenue increased 10% year-on-year to $10.59 billion. FedEx shares rallied on Thursday, as the company reiterated its prior full fiscal year guidance.

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The company attributed price increases and fuel surcharges as its primary revenue generators for the quarter. However, shipment volume at its air package and industrial freight businesses actually declined for the quarter. Domestic shipping volume decreased 4% at FedEx Express and 3% at FedEx Freight - although both segments increased their profits and revenue due to the aforementioned reasons. FedEx Freight's operating profit of $40 million is a drastic improvement over the loss of $90 million it posted a year ago, and it increased its revenue 9% to $1.3 billion.

In addition, inventory destocking in Asia hurt the area's profitability. This hurt its international priority packages volume by 3%. FedEx's ground unit, the cheapest option, saw increased traffic by 6%, primarily due to online shipments from e-commerce retailers. CEO Fred Smith expressed confidence in the company's outlook, citing strength in FedEx Home Delivery and SmartPost services - its two primary residential delivery services, which are usually the cheapest shipping options often used by large online retailers such as Amazon (AMZN: Charts, News). "With the healthy growth in online shopping this holiday season, Smith stated, demand is increasing for these residential delivery services. SmartPost was a standout, with a shipment volume increase of 17% despite a 4% price hike per package.

Although FedEx still trails rival UPS (UPS: Charts, News), the world's largest shipping company, their growth trajectories have remained in tandem with the National Retail Federation's forecast for the holiday season. The Federation, the nation's largest retail trade group, raised its forecast for holiday sales in November and December from 2.8% to 3.8% to a record $469.1 billion. Although this is lower than growth from 2009 to 2010, when retailers were climbing out of the crater of the global financial crises, the estimates for the 2011 holiday season are still much higher than the decade average. For December 12, the busiest shipping day of the year, FedEx is expected to handle over 17 million packages.

FedEx has also inked a deal to purchase 27 new Boeing 767-300 aircraft. The first three are slated to start service in 2014, replacing several aircraft which are over four decades old. Yet it is delaying the roll out of 11 Boeing 777F aircraft as it restructures to balance capacity with demand. From a technical standpoint, shares of FedEx are attractively valued, trading at 11 times forward earnings with a PEG ratio of 0.75. However, the future of the company largely hinges on the containment of the worldwide damage from the Eurozone. If the contagion spreads, then FedEx's rally may be short lived, but if positive economic data from the United States can continue to offset the global gloom, then FedEx shares might be worth a look. In addition, they pay a quarterly dividend of 13 cents per share.

Other News About FDX
FedEx Profit Beats Estimates, Orders 27 Jets
FedEx increases the size of its fleet - over time.
FedEx Profit Jumps 76 Percent to $497 Million
FedEx surprises analysts with record earnings. Other Stocks in the News
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Morgan Stanley begins to crumble - will the rest of Wall Street follow?
China's Internet Growth Rate Shows Signs of Slowing -- Baidu and Dangdang Struggle
Investors are pulling out of the Chinese Internet frontier.

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Published on Dec 16, 2011
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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