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A Look at FedEx’s Capex Forecast for 2019

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FedEx’s capital expenditure for 2019

FedEx (FDX) was optimistic about the passage of the Tax Cuts and Jobs Act (or TCJA). The legislation encourages transportation and logistics (XLI) companies to raise their capex. The company has slightly lowered its 2019 capex forecast to $5.6 billion. In the just-ended fiscal year, the parcel delivery giant incurred capex of $5.7 billion or 8.7% of revenues.

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FedEx’s capital expenditure by segment

A breakdown of FedEx’s annual capex by asset type reveals that aircraft (LMT) and related equipment capital spending rose 37.3% YoY (year-over-year) in fiscal 2018 to $2.4 billion from $1.8 billion. These assets accounted for 44% of total capex in 2018. Package handling and ground support equipment capital expenditure fell 25.5% YoY to $814.0 million in fiscal 2019.

Segment-wise, the Express segment’s capex rose 27% YoY to $3.4 billion in the just-ended fiscal year compared with $2.7 billion in 2017. The same was up 16% YoY in fiscal 2017. The FedEx Freight segment, however, witnessed 13.7% YoY growth in fiscal 2018 capex to $490.0 million. Asset-wise, the company’s investment in vehicles has risen 6.6% YoY to $954.0 million in fiscal 2018 from $895.0 million.

FedEx’s Ground segment’s share in fiscal 2018’s total capital expenditure was 21% down from 29% in the previous year. Over the years, the vertical’s capex has declined. From $1.4 billion in 2017, the company’s Ground segment capex went down 21% YoY to $1.1 billion in fiscal 2018. The vertical’s capex dropped 4.2% YoY in fiscal 2017.

Management outlook

On the fourth quarter earnings call, FedEx mentioned that it has benefitted from the TCJA’s 100% expensing of capital expenditure. The courier giant has sharply reduced its capex outlook for the Ground segment, stating that it won’t build a hub for a long time. However, it projects a substantial rise in the Express segment’s capital investment in 2020 and 2021. FedEx has ordered 12 incremental Boeing (BA) 777F aircraft and 12 incremental Boeing 767F aircraft in accordance with the aircraft (ERJ) fleet modernization program.

In the next part, we’ll look at the state of TNT Express’s integration with FedEx Express.

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