uploads///FDX Capex

Understanding FedEx’s Fiscal 2018 Capital Expenditure

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Jun. 26 2017, Updated 7:37 a.m. ET

FedEx’s capital expenditure

Earlier, we discussed FedEx’s (FDX) segmental and corporate operating margins in fiscal 4Q17. Now, let’s take a look at the company’s capital expenditure (capex).

In fiscal 4Q17, FDX incurred capex of $1.3 billion. In fiscal 2017, the company incurred capex of $5.1 billion, 8.5% of its $60.3 billion in revenue.

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FedEx’s capex composition

Much of FedEx’s capex is consumed by its Express segment, followed by its Ground segment. The company spends roughly 50% on its Express segment and ~30% on its Ground segment. In its Ground segment, FDX continues to invest in pick-up and drop-off locations, advanced IT (information technology), and new services.

FedEx aims to sort ground and residential packages for more than 90% of its network on the same premises by 2020. It’s invested in technologies that will provide the integration of its sortation tools.

FDX ordered two Boeing 777 planes from Boeing in fiscal 4Q17. Aircraft and related equipment accounted for 35% of FDX’s total capex of $5.1 billion in fiscal 2017.

Capex outlook

FedEx aims to spend $5.9 billion in fiscal 2018, which includes a rise in planned aircraft deliveries to back its Express fleet modernization program. 

The company expects incremental capex across all of its segments. FDX plans its capex based on future EBITDA (earnings before interest, tax, depreciation, and amortization) and after-tax cash flows. The general goal is to express capex as a percentage of revenue.

Investing in ETFs

Investors interested in exposure to transportation and logistics stocks, including airlines (DAL), railroad companies (CSX), trucking companies (JBHT), and other logistics companies (UPS), may want to opt for the First Trust Industrials/Producer Durables AlphaDEX ETF (FXR). Major US airlines and railroad companies form 14% and 5.1% of FXR’s portfolio holdings, respectively.

In the next article, we’ll look at TNT Express’s results in fiscal 4Q17.

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