FedEx has published its 4th quarter results (year ending 31 May 2006), with Revenue up 10% and net income up 27%. For the full year Revenues increased by 10% at US$32.3bn, whilst Operating Income is up 22% at $3.01bn and Net Income is up 25% at $1.81bn. Operating Margin has also increased to 9.3%.

All of FedEx’s major transport businesses are showing high single-figure or double-digit growth. The exception is the recently acquired Kinko’s document management business. International Package market continues to be a dynamic market. Despite fuel surcharges underlying demand for ‘International Priority’ grew by 6%. US Domestic Express and ordinary package by contrast shrunk by 2%. Revenue growth and margins were driven by higher prices and lower costs. FedEx Ground volumes grew by 11%, but lower costs and price increases resulted in even higher margins and higher revenue. Similarly FedEx Freight increased its tariffs by over 5% but volumes still grew by 8%.

Cash flow is strong and playing an important part in capital investment. FedEx seems to be operating in a market that has fundamentally strong demand. It has imposed price increases in all its core transport businesses yet business still keeps increasing. Far from being damaged by fuel price increases, FedEx seems to be benefiting from the higher revenue that the resulting ‘fuel surcharge’ delivers. FedEx also seems to have its costs under control. In part this must be due to superior asset utilisation but may well be affected by strong Information Systems management as implied by FedEx. These sorts of volume increases are above global growth rates and illustrate the continuing strength of demand for Transport. Specifically for the sort of transport product that FedEx is offering.

Despite these strong figures there are reasons to have reservations about FedEx. It remains principally exposed to the US market; however the best growth prospects are clearly in non-US markets. The company is targeting China for increased investment and will have a stand alone business in what is likely to be very strong market, but its expansion into other markets appears much slower. If a company such as DPWN/DHL can get its act together operationally there clearly is a lucrative market to be attacked and one that will favour a company with a more balanced exposure to global trade.

Source: Transport Intelligence

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