Can FedEx Corporation (FDX) Keep Rolling?

When FedEx Corporation (NYSE:FDX) reports earnings on March 20, the investment community will be watching, as the results serve as a gauge for economic and industrial activity. FedEx Corporation (NYSE:FDX) shares have soared since my December 7, 2012 blog in tandem with the transportation sector as a whole that has far outperformed the S&P 500 rally over the past six months. Indeed, shipping companies in the trucking and railroad sectors have made for some of the best equities to own during 2013.

So, where will they go from here? Factors such as domestic GDP, energy prices, Asian market trends, and shippers’ propensities to splurge for expedited delivery are baked into the numbers.

FedEx’s Expectations Subdued

FedEx Corporation (NYSE:FDX)’s earnings are being pressured by a shift in its International Express business toward lower-priced services. Despite rising volumes on those routes, operating income has fallen on a year-over-year basis this fiscal year (ends in May). The reasoning behind this has more to do with a larger proportion of consumer direct shipments including e-commerce, and less a result of competitive actions. Thus, earnings for the February quarter generated partly from holiday sales in December, likely declined somewhat from the prior year’s $1.55 a share tally.

Margins are also being restrained by integration expenses related to recent buyouts in Brazil, France, Mexico, and Poland. The inference is that as revenues ramp up profitability will too, supporting a turnaround on the bottom line.

While the Express segment has struggled, FedEx Corporation (NYSE:FDX)’s Ground game is faring well. Indeed, Ground revenues climbed 11% in the November quarter, lifting the unit’s income 4%. Network expansion costs are limiting results in Ground, though this spending should allow FedEx to remain competitive over the long term (3 to 5 years). Finally, the Freight business is generating substantial margin expansion, on the heels of its restructuring.

Overall fiscal 2013 (ends in May) could be viewed as a period when FedEx Corporation (NYSE:FDX) was gearing up for future growth. Along those lines, it is maintaining capital outlays at an elevated level as its upgrades the aircraft fleet. Share profits ought to bounce back next year and beyond with favorable operating conditions. And depending on what its numbers show on the 20th, the shares are still worth considering.

Riding the Market Trends

Under the premise that the intra-U.S. delivery sector is in better shape than the international market, one can capitalize on market opportunities:

For one, I would like to discuss a trucking company that missed the rally, namely C.H. Robinson Worldwide, Inc. (NASDAQ:CHRW). CH Robinson derived 84% of 2012 revenues from truck transportation, in this instance Freight (less-than-truckload) operations. Plus, 189 of its 276 offices are within the United States. Revenues and profits have been advancing. However, the shares sold off sharply after December-period earnings missed analyst expectations.

This company itself has been actively expanding through acquisition. In particular, in November 2012 it bought out Phoenix International Inc. for $635 million in cash and stock. Phoenix, a global forwarding company, is solidly profitable and should add significant accretion to earnings in 2013 as a component of its Ocean and Air segments. Incidentally, the share count did not increase due to the purchase. CH Robinson’s clean balance sheet should facilitate further asset buyouts that would support growth businesses.

CH Robinson shares are intriguing in light of the company’s business model. It has been achieving volume and pricing increases in its core LTL business. Given the growth strategy, I like the stock’s upside potential at its current valuation.

Next, for another logistics provider not exposed to international markets, look into Hub Group Inc (NASDAQ:HUBG).The company contracts with railroads and trucking firms for its transportation operations. It has been keeping those transport costs in check as volumes climb, boosting the gross margin.

Hub Group, too, has strong liquidity. It has in the past grown through acquisition, including a major purchase in 2011 of Exel Transportation Services. The use of cash for further such purposes, along with stock repurchases, is possible.

Reliant on a healthy railroad market, Hub Group is poised to perform well as that shipping mode continues to gain headway. It has relationships with most of the major rail transporters in North America, such as CSX and Union Pacific.

Hub Group shares are at a two-year apex and have appeal for near-term price momentum. They are also a decent selection for a long-term portfolio.

The Scoop

FedEx Corporation (NYSE:FDX) has consistently invested in long-term projects aimed at driving long-term profit growth. Its shares reflect the prospects for an earnings turnaround next fiscal year that should materialize. Take note of the earnings release on March 20. In the meantime, I have highlighted just a couple of the stocks that may benefit from the currently favorable domestic shipping conditions. See also my previous blog dated January 14 where I highlighted several stocks including Forward Air Corp. and GATX Corp.

The article Can FedEx Keep Rolling? originally appeared on Fool.com and is written by Damon Churchwell.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!