FedEx Delivers Another Good Quarter

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In September, I told you about FedEx's (NYS: FDX) fiscal-first-quarter earnings' growth story. In the second quarter, the company reported a bombastic 76% income growth compared to its previous-year quarter. The world's second-largest packaged delivery company posted better-than-expected results thanks to strong Thanksgiving weekend online sales and a better price/volume mix, sending the shares up after the announcement.

Let's dig deeper.

The quarter
Profits increased to $497 million, a 76% year-over-year rise. The company earned $1.57 per share, beating the Street expectation of $1.53 per share. FedEx also improved its operational margins to 7.4%, from 4.9% last year, helped by fewer flights and frequencies.

Overall sales inched up by 10%, to $10.59 billion. Sales at FedEx's largest business -- FedEx Express -- grew 10% and helped the company push up its revenue. Although international priority daily package volume was lower due to a weaker Asian market, the company still logged higher international priority revenues per package due to higher fuel surcharges, rate per pound, and weight per package.

Shopping and holiday mix
With an increase in online shopping during the Thanksgiving weekend, demand for residential delivery services shot up. The fact that online retailer Amazon.com is expected to have a strong holiday season is certainly good news for shipping companies like FedEx.

Looking beyond the quarter
Despite being hurt by a weak Asian market, FedEx has opened its largest express facility in China. The company sees China as an important market for express offerings as it can account for the bulk of FedEx's future growth. Rival United Parcel Service (NYS: UPS) is also increasing capacity in Asia.

Apart from expanding in Asia, FedEx has been conscious of lowering its costs. The company is buying 27 new 767-300 freighter planes from Boeing (NYS: BA) to replace its aging MD-10 planes. The new planes will be 30% more fuel-efficient and more reliable. The order is valued at $4.7 billion. This investment will reduce unit operating costs by 20%.

The Foolish bottom line
FedEx posted bright numbers this quarter due to a combination of strong Thanksgiving weekend e-commerce and higher margins. With well-planned investments in Asia and cost-efficient strategies, FedEx looks intriguing. The company expects to earn $1.25 to $1.45 per share this quarter as compared to the Street expectation of $1.31 per share.

FedEx looks to be a solid bet going into 2012, but if you'd like to take a look at the one company our chief investment officer has picked for tremendous growth in 2012, check out The Motley Fool's brand-new report, "The Motley Fool's Top Stock for 2012." It highlights a company that is revolutionizing commerce in Latin America. You can get instant access to the name of this company by clicking here -- it's free.

Navjot Kaur does not own shares of any of the companies mentioned in this article. The Motley Fool owns shares of FedEx, United Parcel Service, and Amazon.com. Motley Fool newsletter services have recommended buying shares of FedEx and Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

At the time this article was published

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