Wednesday, 18 December 2013

FedEx - what price global logistics?

Under a not dis-similar title to the above, I posted on UPS earlier in the month noting that:

'Global logistics stocks move around on hopes and fears for the global economy but there are some strong themes here'

Well today is the turn of UPS' peer FedEx to report...and all the numbers, at face value, seem to be pointing in the right direction:


In addition to this, FedEx edged up their full-year EPS growth hopes, due to the impact of their share buyback.  Note the additional assumption of 'moderate economic growth' too. 


The heart of the company is the FedEx Express business, as shown below.  So, how did this division get on?


Looking at the numbers in detail, as shown below, the lack of underlying revenue growth (3% in Q2, 2% in H1) did not stop a large increase in the operating profit line in the Express division.  And the reason for this?
 'Operating income and margin improved year over year due to higher base package yields, lower pension expense, and lower net expenses from ongoing cost reduction activities'.
So some better news on yields but otherwise it is all about cost reduction routines.


It is noteworthy too that progress for the Ground and Freight divisions is relatively muted in the low single digits year-on-year over both the Q2 and H1 periods. 

H1 EPS of US$3.1 gives us a clue though over some of the mitigating circumstances.  A late Thanksgiving and hence later Cyber Monday period did have an impact and consequently - and in order to make the FY14 guidance given above - the FedEx anticipate a stronger H2 period. 


 
Back to the quote from the UPS report I cited earlier. 
 
'Global logistics stocks move around on hopes and fears for the global economy but there are some strong themes here'
 
So what value logistics?  If you believe the company's guidance they are trading a little over x12 EV/ebit for their FY15.  That seems pretty full to me even if rising e-commerce flows and general trade increases continue to kick in.  As with my UPS posting conclusion, I want to embrace some volatility...and that's nearer US$125 for FedEx and US$90 for UPS. 
 
Both are buys on a bad day. 

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