Friday December 16, 2011
by Geoffrey Seiler, editor BullMarket.com
Booming online sales for retailers helped drive a big increase in home deliveries and an associated jump in net income for international package shipping giant FedEx (FDX).
The stock -- a buy on our recommended list -- said that its earnings per share grew by 35% on a normalized basis for the fiscal 2012 second quarter, while revenue increased 10% from last year.
On an as-reported basis, FedEx earned $1.57 per share, which was up nearly 76%. Revenue for the quarter grew to $10.59 billion, which was in line with the consensus. Analysts were expecting the company to report $1.53 per share in profit.
Earlier this month, FedEx Ground and FedEx Home Delivery announced that shipping rates would increase by a net average of 4.9% effective January 2nd, 2012.
The full average rate increase of 5.9% will be partially offset by adjusting the fuel price threshold at which the fuel surcharge begins, reducing the fuel surcharge by one percentage point. FedEx SmartPost rates will also increase.
The company also said that it repurchased 2.8 million shares of stock in September at an average price of $70. It currently has 2.9 million shares remaining for repurchase out of the total authorized.
The company guided for EPS in the current quarter to range from $1.25 to $1.45 per share and it maintained its full-year outlook that calls for profit per share to range from $6.25 to $6.75.
While far from a great quarter, FedEx delivered solid results with a modest earnings beat and operating results that were largely in line or slightly better than the Wall Street consensus.
Low expectations and unchanged guidance, meanwhile, were enough to send its shares higher. Online sales have been strong and FedEx has been a beneficiary of all those shipping promotions offered by retailers.
The company also did a good job of adjusting its capacity to deal with inventory de-stocking in Asia, which was one of our primary concerns heading into earnings given that it was an issue last quarter that helped lead the company to lower its full-year forecast.
The fact FedEx can maintain pricing and grow its yield at the same time its adjusting to reduced Asian volume is a testament to how well run this company is.
If the company's view of the global economy is accurate, FedEx's operating leverage should enable it to post solid results for the rest of its fiscal year.
We continue to like the FedEx story for investors with a long view, and if the global economy can get out of the doldrums, then the stock can really take off. We rate the stock a "Buy" with a target of $90.
Learn more about this financial newsletter at Geoffrey Seiler's BullMarket.com.
A daily investment service that is committed to creating long-term wealth for its members, BullMarket.com's Recommended List of stocks was up +40% in '09 and over +20% in '10. As a subscriber, you'll receive actionable market commentary, real-time trade alerts, and access to 40+ stock ideas on the Recommended List.
Plus, sign up for a free trial today and get instant access to Bull Market's invaluable Special Reports and Earnings Previews. Get a Risk-Free Trial to Bull Market Today!