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What’s the Future Outlook for FedEx?

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FedEx’s outlook

For fiscal 2016, FedEx (FDX) has set a mixed bag of guidance. The company has projected adjusted earnings to be $10.60–$11.10 per share before any year-end mark-to-market pension accounting adjustments. The company expects to see better base pricing, volume growth, and benefits from its profit improvement program. This will offset any unfavorable change in fuel prices and anticipated increases in salary and benefits for the year. FedEx expects to see a higher capex of about $4.6 billion due to higher investment in the continued expansion of the FedEx Ground networks. The effective tax rate for 2016 should be 36%–37% before any year-end pension adjustments and excluding any impact from the TNT acquisition.

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Industry outlook

The transport industry is directly dependent on a nation’s economic growth. The US transport industry has seen decent growth in recent years due to globalization, mobile workforce, and declining trade barriers. United Parcel Service (UPS) and FedEx are the two largest companies in this industry in the US. Some of the key factors that affect the company are fuel prices, cargo demand, pricing power, national security risks, and global terrorism.

The industry has benefited from the recent splurge in e-commerce activities. This is expected to remain the key driver in the near future. Most companies are expanding into new markets like Eastern Europe and East Asia. They have a growing middle-class population. The countries are expected to be the profitability drivers in the future. The key routes to expansions will continue to be acquisitions, joint ventures, and alliances with foreign companies.

Investors can participate in the courier growth story by investing in ETFs like the iShares Transportation Average ETF (IYT) and the Industrial Select Sector SPDR (XLI). FedEx forms the largest holding of 13.14% in IYT. Similar companies included in the ETF are UPS, Expeditors International (EXPD), and Con-way (CNW) with 7.60%, 4.19%, and 3.19% holdings, respectively.

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