FedEx’s 1Q17 Results Will Show Impact of TNT Acquisition



FedEx’s revenues in 1Q17

The analysts surveyed by Bloomberg estimate revenues of $14.6 billion in 1Q17 for FedEx (FDX). When compared with 1Q16 actual revenues, this translates into a rise of 19%. The same analysts expect revenues of $58.5 billion in the next four quarters for FDX. In the last four quarters, the company reported revenues of $50.3 billion. The analysts project the company’s 2017 and 2018 revenues to be $59.9 billion and $62.6 billion, respectively.

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Why are analysts expecting substantial upward revision?

96% of FedEx’s US revenues are derived from customers from two or more operating companies. As discussed, the e-commerce and global trade growth have been a key factor in FedEx’s projected revenue expansion.

Plus, the TNT acquisition will provide FDX with a whole new stream of revenues. However, the integration will take almost four years, according to the company information. Analysts expect FedEx to bank on its own shipping expertise to add value to TNT’s customers.

The near-duopoly business of FedEx as reflected in the 4.9% price rise by major segments in the US will pump the top-line growth. FedEx management expects to continue to capture more of the growing market in fiscal 2016 and beyond with the FedEx ground segment, which delivers small packages throughout the US and Canada. Even the recent rise in crude oil prices boosts the hopes for higher fuel surcharge recoveries.

However, the risks to revenues remain in the form of unfavourable currency exchange rates. Again, though FedEx claims Amazon (AMZN) is just 3% of the total revenues, investors should pay attention on that front as well.

ETF investment

Investors seeking exposure to big industrial companies can consider investing in the Industrial Select Sector SPDR Fund (XLI). FedEx makes up 12.2% of the portfolio holdings of XLI. This ETF also holds 4.6% and 4.0% in Union Pacific (UNP) and United Parcel Service (UPS), respectively. In the next part, we’ll go through analysts’ expectations about FedEx’s operating margins.


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