The economy is improving, and things are looking good for express logistics companies like FedEx Corp. (FDX)
Well, pretty good at least. Yes, demand for cargo shipments is up and so are revenues, which rose in the third quarter of fiscal-year 2011 by 11 percent to $9.7 billion from the same period a year earlier.
"Continued growth in the global economy is driving solid revenue gains in our transportation businesses," says Chairman and CEO Frederick W. Smith in an earnings statement. "We expect strong demand for our services to boost our financial performance in our fourth quarter."
Yet there are clouds on the horizon. Net income during the third quarter of the company's fiscal year was down 3 percent to $231 million thanks in part to higher fuel prices.
Winter storms in the United States during the period disrupted business enough to hurt earnings. Pricey fuel, turmoil in the Middle East, and the lingering effects of the Japanese earthquake on cargo, freight, and logistics industries will bear watching going forward.
Yet if there's one thing an express logistics company like FedEx needs, it's an improving economy, and it certainly has that going for it.
Plus, the industry enjoys relatively hefty barriers to entry; anyone can start up a social network or web service, but few can slap billions together and buy a fleet of trucks and airplanes plus approvals to service airline routes as do FedEx and rival UPS (UPS).
Growing in hot emerging markets
FedEx is getting a bit of growth from emerging Asia, too. In February, FedEx said its FedEx Express business acquired the logistics, distribution, and express businesses of Indian logistics company AFL and its affiliate Unifreight India for an undisclosed sum.
"The addition of the AFL and UFL businesses to the FedEx Express network will provide customers with more comprehensive international and India domestic service options, such as air express, domestic ground, and value added-services, including warehousing, logistics solutions and 3PL," says Michael L. Ducker, chief operating officer at FedEx Express, in a statement.
Morgan Stanley upgraded FedEx to overweight in late March, putting the price target at $115, a 20 percent premium from recent trading action. The bank said earnings seemed to be improving.
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