FedEx (NYSE: FDX) is an American postal company., courier and other logistics services, founded in 1971.
In mid-December 2021, the company submitted a report for the second quarter of 2022, which reflected double-digit sales growth and zero change in adjusted net income:
- revenue increased by 14% from $20.563 billion to $23.474 billion driven by strong results across all major segments;
- EBITDA increased by only 8% from 2.401 to 2.592 billion dollars against the backdrop of outpacing growth in operating expenses;
- net profit decreased by 15% to RUB 1.044 billion due to one-off losses of $260 million;
- adjusted net income for 1 share has not changed and amounted to 4,83 $;
- Management Announces Launch of New FedEx Accelerated Share Buyback Program.
What the company makes money on
FedEx business is conditionally divided into five divisions:
- FedEx Express is the top revenue segment, which provides express delivery of parcels and cargoes of any weight around the world.
- FedEx Ground - Ground shipping for small orders up to 150 pounds (~ 68 Kg) in the USA and Canada.
- FedEx Freight - LTL Freight Delivery of Large North American Orders over 150 pounds.
- FedEx Services - Domestic Segment, who helps other departments with sales, Marketing, IT, Communication, customer service and technical support.
- Other divisions.
Other divisions include:
- FedEx Office - own retail network, company providing services.
- FedEx Dataworks - Digital, where FedEx puts its global trade and global supply chain data.
- FedEx Logistics - Transportation Related Services, e.g. customs clearance, brokerage services, as well as integrated solutions for supply chain management.
FedEx Express. The revenue of the company's largest business segment in the second quarter of 2022 grew by 12% with 10,368 to $11.605 billion driven by rising prices and strong FedEx International Priority results, whose indicators increased by an average of 30%.
Of the negative points, it is worth noting the lack of personnel and the temporary inefficiency of air transportation, associated with the spread of coronavirus and in particular the Omicron strain. Besides, in the second quarter of 2020, FedEx received tax deduction in the amount of $ 70 million due to the reduction of excise taxes on aviation under the bill of former US President Donald Trump, which was in effect before 31 December 2020 and helped businesses fight the effects of the pandemic.
FedEx Ground. The division posted mixed results this quarter: revenue increased by 12% to $8.264 billion due to higher service prices, and operating profit fell by 13% to $0.481 billion due to increased transportation costs and wages, because there is not enough staff.
As for operating results, then the main trends of all segments are the same: FedEx increases service prices due to rising shipping costs. Fuel prices rose year on year 83%, and the demand for services is growing, which, combined with a lack of staff, led to additional logistical costs. In the second half of the financial year, management expects transportation costs to decrease.
FedEx Freight. The best result in comparison with other large segments was demonstrated by this particular direction.. Revenue increased by 17% up to $2.272 billion, and operating profit by 33% up to $0.334 billion. Main positive drivers: rising prices for services and the number of new orders.
FedEx recorded $470 million in spending in the second quarter of 2022, of which $230 million was wage and fuel cost increases, and $240 million increased costs for additional transportation and more frequent use of third-party vehicles due to lack of staff.
Revenue by main divisions of the company, billion dollars
| 2к2021 | 2к2022 | The change | |
|---|---|---|---|
| FedEx Express | 10,368 | 11,605 | 12% |
| FedEx Ground | 7,344 | 8,264 | 13% |
| FedEx Freight | 1,936 | 2,272 | 17% |
| FedEx Services | 0,008 | 0,077 | 863% |
| Other activities | 0,907 | 1,256 | 38% |
| total revenues | 20,563 | 23,474 | 14% |
Key financial results of the company, billion dollars
| 2к2021 | 2к2022 | The change | |
|---|---|---|---|
| EBITDA | 2,401 | 2,592 | 8% |
| EBITDA margin | 12% | 11% | −1 p. P. |
| Net profit | 1,044 | 1,226 | −15% |
| Adjusted net income | 1,300 | 1,300 | 0% |
| net debt | 14,979 | 13,670 | −9% |
Forecasts
During the conference call, management predicted the growth of the domestic parcel market in the United States by 2026 by 70% up to 134 million shipments per day compared to 2020. The main growth is about 90% - will be for e-commerce.
Besides, management has revised its past financial guidance for 2022 amid losses, related to the pension plan at TNT Express, the European subsidiary of FedEx from the Netherlands:
- Annual EPS guidance was slightly cut from 18.25-19.50 $ until 18.25-19.25 $.
- Full-year adjusted earnings-per-share forecast up from 19.75-21 $ to 20.5-21.5 $ on the back of improved profitability and higher earnings in the second half of 2022.
- The effective tax rate in 2022 for FedEx will be at 24%.
- Capital expenditures to rise to $7.2 billion.
- Board of Directors approves new $5 billion share buyback program, of which $1.5 billion will be spent by FedEx on ASR, an accelerated buyout process.
Comparison with competitors
FedEx has had a weak 2021 - quotes have not changed much since the beginning of the year, unlike competitors. Main reason, why did this happen?, — strong dynamics in 2020, when the shares of a logistics company from their March lows to 100 $ rose by December 300 $.
Comparison with competitors
| EV / EBITDA | P / E | net debt / EBITDA | |
|---|---|---|---|
| FedEx Corporation | 8,33 | 13,65 | 1,41 |
| UPS | 12,02 | 24 | 0,86 |
| German postal service | 7,01 | 13,95 | 1,13 |
| C. H. Robinson Worldwide | 13,57 | 17,41 | 1,39 |
| XPO Logistics | 7,98 | 25,44 | 2,22 |
What's the bottom line?
FedEx posted good financial results for the second quarter of 2022, considering the fact, that the coronavirus is still having a negative impact on the logistics sector. Next year, the company has every chance to show stronger market dynamics compared to competitors. Main Factors, that will help you achieve this goal., is the growth of e-commerce in the US, recovery of the American labor market, strong FedEx financial guidance for the second half of 2022 and an additional $5 billion share repurchase.
