True Blue Chips pay off

Learn everything you need to know in 'The Best Blue Chips for Canadian Investors' for FREE from The Successful Investor.

Canadian Blue Chip Stocks: Bank of Nova Scotia Stock, CP Rail Stock, CAE Inc. Stock and more.

 I consent to receiving information from The Successful Investor via email. I understand I can unsubscribe from these updates at any time.

Topic: Blue Chip Stocks

Online shopping spurs this global shipper

This ground-and-air packaging delivery giant recently completed a big acquisition. So far, the new business fits nicely with existing operations and has helped expand overall profit; earnings up 24.1% in the most recent quarter.

 The company also continues to spend significantly to upgrade its sorting facilities and robotics equipment—investments that should prepare it from future growth, but also help to contain its costs.


Do You Own Any U.S. Stocks?

Time to see what the best U.S. stocks will do for you

The most successful Canadian investors have at least 20% of their portfolios in U.S. stocks to build the power of their portfolios.

Click here to find the best US stocks >>
 

FEDEX CORP. (New York symbol FDX; www.fedex.comdelivers packages and documents in the U.S. and 220 other countries. The company began offering air-delivery services in 1973 under the Federal Express banner. It’s now one of the world’s largest shipping firms: It delivers packages and documents in the U.S. and 220 other countries through a fleet of 660 planes and 170,000 trucks and other ground vehicles. It processes over 14 million shipments a day.

The company has three main businesses: FedEx Express (59% of revenue, 45% of earnings) offers air-delivery services; FedEx Ground (30%, 46%) provides ground-delivery services in the U.S. and Canada; and FedEx Freight (11%, 9%) specializes in less-than-truckload shipping, which combines freight from multiple customers onto one vehicle.

On May 25, 2016, the company completed its $4.9 billion acquisition of TNT Express NV, a Netherlands-based courier operating across Europe. The deal made FedEx the second-largest courier on the continent after United Parcel Service.

Revenue for the fiscal 2019 second quarter, ended November 30, 2018, rose 9.3%, to $17.8 billion from $16.3 billion a year earlier.

Earnings jumped 24.1%, to $1.08 billion from $866 million on that increase—plus cost cutting. Due to fewer shares outstanding, per-share earnings rose 26.7%, to $4.03 from $3.18. Those gains exclude costs to integrate TNT and the impact of changes to the U.S. tax code.

The integration of TNT is taking longer than FedEx expected. As a result, the company now expects to earn $15.50 to $16.10 a share for all of fiscal 2019. That’s down from its earlier forecast of $17.20 to $17.80 a share. The stock trades at just 10.3 times the midpoint of the new range.

Blue Chip Stocks: 4 million extra packages a day attributed to e-commerce rise

The company has also profited from rising online shopping volumes, which have spurred demand for its delivery services. In 2018, its Express shipping volumes rose 2.6% from 2017.

FedEx plans to expand its ground-delivery operations in the U.S. on a permanent basis to six days a week from five. It will continue to deliver packages seven days a week during the busy holiday shopping season.

The expanded schedule is due to rising demand for e-commerce: FedEx handled 10 million packages a day 10 years ago; it now handles 14 million packages a day.

The company’s investments over the past few years in new facilities and robotic sorting equipment have helped it cope with the higher volumes and keep its costs down.

Due to those rising volumes, FedEx continues to invest in new planes, trucks and other equipment. It will probably devote $5.6 billion to those upgrades in fiscal 2019. That would represent a slight decrease from $5.7 billion in 2018.

The company will also spend $1 billion to modernize its main hub in Memphis, Tennessee. That facility processes around 47% of its total volume. FedEx will also invest $1.5 billion to expand its hub in Indianapolis, Indiana. The upgrades will take several years to complete.

New tariffs on goods shipped between the U.S. and China could slow FedEx’s revenue growth.

However, starting with the July 2018 payment, FedEx increased its quarterly dividend by 30.0%. Investors receive $0.65 a share instead of $0.50 a share. The current annual rate of $2.60 yields 1.2%.

Recommendation from the Wall Street Stock Forecaster: FedEx is a buy.

Comments

Tell Us What YOU Think

You must be logged in to post a comment.

Please be respectful with your comments and help us keep this an area that everyone can enjoy. If you believe a comment is abusive or otherwise violates our Terms of Use, please click here to report it to the administrator.