In June, Frederick Smith, who founded FedEx and led it for over 50 years, will step down as CEO. The shipping behemoth operates 695 aircraft in 220 countries and handles 17 million packages daily. Its headquarters are in Tennessee.
FedEx owns several companies – FedEx Express, FedEx services, FedEx Ground, and others. These companies operate independently but collaboratively, which allows them to provide a broad spectrum of transportation, business, and e-commerce solutions to customers.
There has been a slowdown after the pandemic boom. Still, FedEx sales have risen from $65 billion in 2018 to $89 billion in 2021. The three-year CAGR has been 9%. The operating margin for the past year has been 8%.
FedEx ended Q3 2022 with $6.1 billion in cash, with a target of over $3 billion in adjusted free cash flow for FY 2022. These cash flows will enable the company to make share repurchases and the necessary capital investments.
Competitor UPS recently overtook FedEx in sales. Even though the two companies have comparable sales, the market cap of UPS is three times that of FedEx.
FedEx benefited during the pandemic by delivering PPE and vaccines. Rising demand and supply chain bottlenecks augur well for transportation companies like FedEx. FedEx has also profited greatly from the growth of online shopping in recent years. But many companies (Amazon and Walmart included) have started delivery services, reducing their dependence on FedEx and UPS.
FedEx has the most extensive physical network and arguably the best technology among shippers. It has partnered with Microsoft to make its supply chain and logistics systems more efficient by shifting to the cloud platform, Azure. The last-mile service in residential areas has been improved by the start of a drone service. The company is experimenting with electric and autonomous vehicles.
FedEx’s ground network predominantly comprises independent contractors who can quit for marginally higher hourly wages. This may lead to labour shortages and affect on-time delivery performance. In contrast, UPS has a stable but unionised workforce.
The Ukraine war has pushed up fuel prices. FedEx has passed on the increase to customers, but local contractors and truck drivers are still hurting.
FedEx has strong operational capabilities. It invests in new technologies to improve efficiency. The company takes strategic initiatives to drive growth (like opening an office in Seoul). The P/E ratio is currently about 11. Its current share price is $211 compared to the 52-week high of around $320. FedEx is a good choice for value investors.
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