While there's certainly more bearish sentiment around than there was one year ago, the S&P 500 continues to turn in a strong performance, hitting a new record high just this morning (Nov. 18). And while the voters of America expressed strong dissatisfaction on Election Day with the track that the country is on, the fact remains that the underlying economic growth statistics are quite good.
Which companies are well-situated to prosper as the economy grows, but also well-established enough to survive an unexpected downturn? One good choice is Federal Express (NYSE: FDX), which has largely replaced the Post Office as the key institution for moving physical packages around the United States.
FedEx enjoys some key advantages over its rivals.United Parcel Service(NYSE: UPS), for example, is struggling to streamline its operations in the face of an aggressive union. Meanwhile, the U.S. Postal Service has all the problems that come with being a slow-moving government bureaucracy, but also has financial issues because the government has tried to make it self-sustaining.
FedEx's shipping business has three main segments: FedEx Express, which accounted for 60% of the company's revenue in fiscal 2013, offers worldwide delivery within one to three business days; FedEx Ground (22% of revenue) delivers packages throughout the U.S. and Canada; and FedEx Freight (12%), which ships less-than-truckload (LTL) deliveries.
The company looks well-positioned to turn in a strong performance this holiday season, thanks to the strong growth of online shopping. Many websites are offering incentives, such as free shipping, as they battle to take market share from brick-and-mortar retailers. In response, chains are fighting back by offering similar deals to keep customers coming back to their sites.
For the most recent quarter, FedEx Corp. reported earnings of $2.10 per share for the first quarter (which ended August 31), up 37% from last year's $1.53 per share.
"FedEx Corp. is off to an outstanding start in fiscal 2015, thanks to very strong performance at FedEx Ground, solid volume and revenue increases at FedEx Freight and healthy growth in U.S. domestic volume at FedEx Express," said Frederick Smith, FedEx Corp. chairman, president and chief executive officer. "More customers are relying on FedEx because they appreciate the competitive advantages provided by our broad portfolio of solutions."
Revenue of $11.7 billion was up 6% from $11.0 billion the previous year. Operating income of $987 million was up 24% from $795 million last year
In the longer term, the company should benefit from its ongoing international expansion, particularly in fast-growing markets in the Middle East, Asia and Latin America. For example, FedEx has expanded its service from Asia to markets in the Middle East, which will result in shorter shipping times.
The company continues to roll out its Priority Alert service, which it sells under contract to companies that have critical shipments, such as health care or financial firms.
Under this service, packages are wrapped in bright pink tape to mark their priority status when loading or unloading. These items also receive extra monitoring from a dedicated group of employees who can also provide more accurate estimates of delivery times. As well, Priority Alert Plus, aimed specifically at health care clients, offers services like dry ice replenishment and access to cold storage in order to do a better job of preserving these items.
Demand for this service should continue to grow as more companies move toward a just-in-time inventory model and health care services expand to cater to the needs of an aging population.
The company suffered a minor setback when the Kansas Supreme Court issued a decision finding that a class of mostly former contractors in the state of Kansas should be considered employees under the Kansas Wage Payment Act, contrary to previous rulings by the United States District Court for the Northern District of Indiana.The decision applies to those independent contractors operating in Kansas from 1998-2007.
If it stays in effect, this decision could raise the company's labor costs in the state. But FedEx seems to have a good chance of getting it overturned on appeal.
FedEx is continuing to lower its costs in other ways. Under its current restructuring plan, it is selling off non-core assets and reducing the size of its workforce. To that end, it began offering voluntary buyouts of up to two years' pay to some of its U.S. employees.
The company has a reasonable price-earnings ratio of 23, and its market cap is now closing in on $50 billion. It's a buy up to 185.
Tom Scarlett is an investment analyst at Personal Finance.
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