Holiday Shipping Should Cheer Up Fedex’s Results
Higher shipping volumes driven by e-commerce during the holiday season is expected to add significant growth to FedEx‘s (NYSE:FDX) earnings in the otherwise slow growing global economy. Increased customer spending on online shopping during the holiday season will drive growth in shipping volumes for delivery companies like FedEx and UPS (NYSE:UPS).
FedEx estimates that it will ship more than 280 million shipments during the holiday season this year, up 13% y-o-y. [1] This growth from higher shipping volumes has allowed the company to forecast earnings in the range of $6.20–$6.60 per diluted share for fiscal 2013. This compares to earnings of $6.41 per diluted share for fiscal 2012. [2]
We currently have a stock price estimate of $98 for the company, approximately 10% above its current market price.
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Growth in e-commerce will drive growth in holiday shipping volumes
As more people shop online for holiday gifts, shipping volumes are expected to rise for delivery companies like FedEx and UPS, which have delivery contracts with several large Internet retailers, including eBay and Amazon. Electronic items, apparel, luxury goods and other items from large Internet retailers constitute a significant portion of total holiday shipping volumes. In the upcoming holiday season from Thanksgiving to Christmas, online sales excluding travel are expected to grow by 16.8% y-o-y to $54.5 billion, according to eMarketer. [1] Compared to this, retail sales are expected to grow by only 4.1% y-o-y to $586.1 billion in the same period, according to the National Retail Federation (NRF). [1]
FedEx positions itself to take advantage of e-commerce growth
FedEx on its part has taken several steps to benefit from e-commerce growth during the holiday season. The company plans to add 20,000 seasonal workers to its workforce to cope with higher delivery volumes during the period. [3] FedEx anticipates December 10 to be the busiest day in its history when it ships a projected 19 million shipments. [1] Called as Green Monday, the second Monday of December is one of the most lucrative days of the year for online retail companies. In 2011, U.S. consumers spent $1.1 billion on Green Monday according to comScore. [1] Generally, the day kicks off the heaviest online shopping week of the year.
In addition, FedEx has a service solution called FedEx SmartPost targeted at the e-commerce industry and is designed to help online retailers and cataloguers ship high volumes of low-weight shipments to residential customers. Under this service, the company picks up, sorts and delivers packages to the U.S. Postal Service facilities, which then makes the final deliveries to residences. In fiscal 2012, average daily package volume through FedEx SmartPost increased 18% y-o-y to 1.7 million shipments. [1]
All in all, increased online shopping during the holiday season will increase shipping volumes for FedEx, and thereby add to growth to its full year earnings.
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Notes:- Record FedEx Holiday Volume to be Driven by E-Commerce, October 22 2012, www.fedex.com [↩] [↩] [↩] [↩] [↩] [↩]
- FedEx Corp. Reports First Quarter Results, September 18 2012, www.fedex.com [↩]
- FedEx to add 20,000 seasonal workers, sees shipping up 13 pct, October 22 2012, www.reuters.com [↩]