Santa�s busiest night of the year might be Christmas Eve, but Dec.12 was crunch time for his holiday package-delivering peer FedEx (NYSE:FDX). It shipped 17 million packages that Monday — the company�s biggest day ever and nearly double its normal daily volume. The delivery boom — combined with a hefty boost in sales and net income — makes a pretty nice present for FDX shareholders.
Sure, rival UPS (NYSE:UPS), whose biggest volume delivery day was Dec. 22, boasted 26 million deliveries in one day. But Brown�s volume grew by only 6% over last year; FDX was up 10%. Robust growth in volume, sales and income illustrates that the business model company founder and CEO Fred Smith first floated in a college paper not only is still viable after 40 years, but continues to be innovative. Smith wouldn�t have it any other way.
The company that the former Marine Corps aviator founded under the �Federal Express� name continues to be �a stable blue chip that provides steady earnings growth,� as Paul R. LaMonica says in his InvestorPlace story that declares FedEx as his Top Pick for 2012. Last week, FedEx reported a whopping 76% increase in second-quarter net income — $497 million on revenue of $10.6 billion. Sales were 10% higher than the same quarter last year, and operating margins rose to 7.4% from last year�s 4.9%.
Overall, the holidays have been very good to FedEx — if you don�t count a badly muffed computer monitor delivery that was caught on camera and went viral on the Web, flaming the company. In its unique style, FedEx fought fire with fire: FedEx U.S. Operations VP Matthew Thornton III replayed the incident three times during his YouTube video apology.
Still, one dumb incident shouldn’t be a spoiler. Here are four reasons FedEx is poised to soar in 2012 (and make LaMonica’s call a good one):
Booming E-Commerce. Business-to-consumer e-commerce is a huge market for FedEx. One reason is its big success with SmartPost, which economically delivers low-weight retail packages most of the way, with the U.S. Postal Service delivering the parcels to the customer�s door. Large volume increases with FedEx Ground and Home Delivery also accounted for much of the recent growth.
Boosting Rates = Better Margins. FedEx already has boosted its margins by about one-third, and a rate increase averaging 4.9% that takes effect on Jan. 2 should also offset its slip in Asia freight volumes. (UPS increased its rates by the same percentage). Yield management will continue to be the strategy for FedEx�s integrated less-than-truckload (LTL) freight business through 2012.
Fuel Efficiency. Fuel costs and volatility are the bane of every transportation carrier�s existence. So, while going greener is great for the environment, it�s just as good for the bottom line. FedEx wants eventually to mothball its gas-guzzling MD-10 air freighters. These three-engine behemoths are nearly four decades old. FedEx inked a deal with Boeing (NYSE:BA) this month to purchase 27 new, twin-jet 767-300 freighters, which should save a bundle on fuel. Delivery of the first three 767Fs is scheduled for 2014. FedEx, which already has deployed thousands of green vehicles, will work with Nissan to test a fleet of all electric NV200s in London next year.
Smith Keeps Delivering Value. The FedEx CEO�s reputation for innovation continues to make him the company�s not-so-secret weapon. Back in 1978, when Smith famously said, �The information about the package is just as important as the package itself,� he helped birth a supply-chain revolution.
At 67, Smith is still a visionary, telling attendees at a 2010 Wired magazine conference that he imagines a day when unmanned drone aircraft could be loaded with packages and transported from city to city, under the watchful eye of a traditionally piloted plane. “Think of it like a train where you have a locomotive and you put two or three or four or 10 cars — depending on what demand is — and the drones basically fly the exact same flight profile in formation,” he said.
While the Department of Homeland Security is likely to nix that idea — at least for the foreseeable future — Smith has a plethora of other innovative ideas ready to take his delivery business to the next level.
As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.
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