Table of Contents
Introduction
Federal Express (FedEx) Corporation was founded by Frederick W. Smith. FedEx is a major contender in the package and freight logistics market today. They are a global leader and direct competitor to United Parcel Service (UPS). When FedEx first began their operations, the specialty service was express air shipments of time-sensitive shipments such as medicine, computer parts, etc. The concept was for FedEx to successfully deliver the parcel to their destination within one to two days, this was significantly quicker delivery service than UPS could deliver shipments. As the company grew FedEx added import/export express shipments. Today, FedEx offers express, ground, freight services, and Kinkos office and printing as part of their shipping and logistics services.
FedEx strives to offer excellent customer service and develop more efficient methods of meeting their customers logistics needs around the world. Their first move towards this goal was to add points of service and purchase larger airplanes. FedEx then added parcel ground services, freight, and rail transportation to their portfolio. Today, FedEx provides transportation services to almost every country around the world.
Company History
Frederick Smith founded FedEx in 1971 after graduating from Yale. While a student at Yale he attended classes with notable future politicians like John Kerry and President George W. Bush. Smith started the FedEx with a $4 million inheritance from his father and a hefty $91 million in venture capital. FedEx was based on a concept Smith developed while at Yale by integrating air and ground shipments. For the first two years FedEx operated out of Little Rock national Airport. In the spring of 1973, Smith moved the operations to his hometown and their current location in Memphis Tennessee.
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He chose this location to relocate operations because the Memphis International Airport rarely had to close due to weather conditions, it was a central location to the rest of the states, and airport officials were willing to make the improvements needed to accommodate FedEx aircraft. At the time FedEx had 389 employees, 14 Dassault Falcon 20 jet’s that serviced twenty-five cities and delivered 189 packages the first night. During their first three years FedEx reported operating at a net profit loss, “while being the most heavily venture capital financed company in US history” (Martin Murray, The Balance 2018) In July of 1975, FedEx showed their first profitable month, and in 1976 they delivered 19,000 packages daily, and finally had their first profitable year of $3.6 million.
FedEx was an instrumental voice with lobbying with legislation to deregulate air cargo laws. In 1977, the US Government passed a bill to deregulate the air cargo industry. This opened new doors for FedEx as they could now operate with larger aircraft. Due to the changes in regulations they purchased larger aircraft (Boeing 727 and McDonnell-Douglass DC-10s). By purchasing the larger airplanes FedEx now had the capacity to transport more packages daily. At the end of 1977 they reported having 31,000 regular customers (including IBM and the US Air Force) and a profit of $8 million from sales of $110 million. The first regularly scheduled international flights began in 1985 with service to Europe and Asia. This was a major pivot point for the company and instrumental in opening the international market to their services.
In 1978 Federal Express became a publicly traded company and was listed on the New York Stock exchange with the ticker symbol of FDX. In the early 1980’s FedEx had made their mark in the industry and their growth rate was compounding approximately 40 percent each year, leaving the competition struggling to keep up. 1983 was another monumental year for FedEx as they had recorded $1 billion in revenues for the fiscal year.
Organizational Structure
FedEx Corporate, located in Memphis TN. houses their main airport hub, all marketing, sales, technological equipment, advancements, and customer relations are handled from this location. Federal Express began to acquire other companies and the official decision was made to change the name from Federal Express to FedEx in January of 2000.
Federal Express became FedEx Express (air service), RPS became FedEx ground, Roberts Express became FedEx Custom Critical, American and Viking Freight became FedEx Freight, and Caliber Logistics and Caliber technology became FedEx Global Logistics. The corporate office also make sure all divisions of FedEx (FedEx Express, FedEx Ground, FedEx Freight, and FedEx Office), are continuously working in cooperation with the other divisions. FedEx Express, encompasses the world’s largest fleet of cargo airplanes.
FedEx Ground handles the transportation and delivery of all small parcels that are delivered to businesses and residence. FedEx freight is their latest addition to their service offering, freight handles all LTL (less than truck load) and TL (truck load) shipments. Finally, FedEx Office, formerly FedEx-Kinko’s provides office solutions and printing services for their customers. FedEx currently owns two major airport hubs they operate from, the “Super Hub” in Memphis Tennessee (opened in 1981), and their new $100 million hub in Shanghai, China (opened in 2017). In conjunction with the airport hubs FedEx also operates out of freight hubs in all major cities where they process all ground parcels and freight shipments.
With the combination of all the services FedEx offers they became the first company in the United States to report revenues of $1 billion dollars within the first ten years of business. They were also the first company in the service industry to receive the Malcolm Baldridge National Quality Award (MBNQA) award in 1990. This award was established by the U.S. Congress in 1987 to recognize companies that successfully implemented quality management systems. “Since 1987, overall customer satisfaction with Federal Express’s domestic service has averaged better than 95 percent, and its international service has rated a satisfaction score of about 94 percent. In an independently conducted survey of air-express industry customers, 53 percent gave Federal Express a perfect score, as compared with 39 percent for the next-best competitor. The company has received 195 awards over the last 13 years, and representatives of nearly 600 businesses and organizations have visited its facilities” (NIST 2002). This award is considered as the highest and most prestigious presidential honor given and is based on the company’s performance excellence.
Today FedEx has over 450,000 employees globally, they reach out to over 6.5 billion customers, and move 15 million packages’ daily. Their current stock price is $181.89/share their 52-week high was $266.67/ share and the 52-week low was $150.94/ share, the annual revenue from 2018 was $65.5 billion. FedEx has maintained strong financial growth and stability while operating all divisions based in several markets around the world. In June of 2018, FedEx reported the following breakdown for the percentage of each division’s contribution to the overall profitability of the company. FedEx Express 57%, FedEx Ground 27%, FedEx Freight 13%, and FedEx Services 3%. They currently operate in over 220 countries and territories.
FedEx Express and Ground service employees handle over 14-million small packages, and freight handles over 11-million pounds daily. FedEx air fleet has over 700 aircraft in their fleet that operate out of 2150 stations and 13 air express hubs worldwide and have plans to add an additional 24 more their fleet by 2021. The ground division has over 80,000 vehicles that operate out of the 39 ground hubs and 600 operating locations. The freight division has a fleet of 14,500 semi-trucks that operate out of their 370 service centers terminals in the US and Canada. In addition to these service centers they service over 20 million customers daily online through their website (www.fedex.com).
Due to the diverse markets they operate in FedEx, must maintain high standards and make sure all business divisions are functioning efficiently. In doing so this has enabled them to obtain most of the market share and maintains the number two spot in the small parcel world of shipping. The major competitors are United Parcel Services (UPS) “holds the #1 spot”, Dalsey Hillblom and Lynn (DHL), and US Postal Services (USPS). Among the competition FedEx maintains the highest percentage of air freight deliveries, UPS maintains the highest number of ground parcel delivery. As FedEx is growing their business and increasing their fleets, they are gradually narrowing the gap between UPS and FedEx. FedEx is also keeping a close eye on Amazon, as they build their network of distribution centers and delivery fleet. Amazon has not presented themselves as a huge threat to FedEx services, but they are growing and could potentially take some market share from FedEx ground services.
Social Responsibility
FedEx has committed to being socially responsible and giving back to local communities around the world by creating the outreach program “FedEx Cares”. They have committed to invest $200 million in over 200 global communities around the world towards helping them create positive change by the year 2020. They have several outreach programs where these funds and services are being focused towards; Delivering resources in times of natural disasters or for special shipments, helping to build infrastructure in urban areas, creating employment pathways in underdeveloped countries, creating road safety programs globally to make the roadways safer for pedestrians, and helping women and minority entrepreneurs build their businesses.
They support community wide charitable investments and encourage their employees to take time and volunteer thousands of hours yearly investing in their local communities. “FedEx has a strong culture that values community engagement. I’m proud to work for a company where the team members are committed to volunteering their time and expertise for important causes” (Jenny Robertson – FedEx Vice President Corporate Communications, 2013)
Financial Analysis
FedEx reported the 2018 fiscal year end (May 31, 2018) $17.3 billion in revenue, $1.49 billion in operating income, 8.6% operating margin, giving them a net income of $1.13 billion, and stock prices ranged between $207.90 – $274.66 per share. Debt to Equity was 0.85, Debt to capital 0.46, and Interest coverage 8.80, FedEx Corporations debt-to equity ratio improved from 2017 to 2018, and debt-to-capital ratio also improved from 2017 to 2018. This is supporting evidence of the strong financial stability of FedEx Corporation.
When analyzing the weighted average an individual can determine the amount of interest the company pays per dollar financed. The company’s assets that are financed by debt and equity give us a picture of the success of their operation. To calculate the weight of debt and equity we need to consider the market value of the equity (E). As of May 31, 2018, the market capitalization (E) is $60345.131 million.
To calculate the market value of debt the book value of their debt (D) was used. To get this figure I took the last two years of the current portion of their long-term debt and averaged it with the current long-term capital lease obligation. As of May 31, 2018, the two-year average of current portion or long-term debt was $682 million, and the current portion of long-term capital lease obligation and long-term debt was $15076 million, giving a total book value of debt (D) $15758 million.
a.) Weight of equity = E/(E+D) = 60345.131/(60345.131+15758) = .7929
b.) Weight of debt = D/(E+D) = 15758/(60345.131+15758) = .2071
An evaluation of FedEx corporation’s financial strength, business transactions, social responsibility actions, and goods & services provided follow suit with their revised mission statement in 2012. The new mission statement sums up the findings in this research “FedEx Corporation will produce superior financial returns for its shareowners by providing high value-added logistics, transportation and related business services through focused operating companies. Customer requirements will be met in the highest quality manner appropriate to each market segment served” (FedEx, September 14, 2013).
References
- Corporate news articles for FedEx, Retrieved 02/17/2019. Web. https://www.washingtonpost.com/business/fedex-good-news-gets-even-better-with-big-league-tax-cut-gadfly/2017/12/19/2c0c64a8-e519-11e7-927a-e72eac1e73b6_story.html?noredirect=on&utm_term=.6dd1d8be8d57
- FDX Key Statistics | FedEx Corporation Common Stock – Yahoo! Finance. Retrieved 02/16/2019. Web. http://finance.yahoo.com/q/ks?s=FDX+Key+Statistics
- FedEx 2018 Annual Report. Retrieved 02/16/2019. Web. http://investors.fedex.com/financial-information/annual-reports/default.aspx
- FedEx financial statistics. Retrieved 02/22/2019. Web. https://finance.yahoo.com/quote/FDX/key-statistics/
- FedEx Stock analysis. Retrieved 02/21/2019. Web. https://www.stock-analysis-on.net/NYSE/Company/FedEx-Corp/Analysis/Income-Taxes
- FexEx beginnings. The Balance Small Business. Martin Murray December 06, 2018. Ret. 02/16/2019 Web.https://www.thebalancesmb.com/federal-express-fedex-2221098
- Investing in FedEx Stock. Retrieved 02/21/2019. Web. https://www.investing.com/equities/fedex-corp
- Malcolm Baldrige Award. Ret. 02/20/2019. Web. https://www.nist.gov/baldrige/baldrige-faqs-baldrige-award-recipients
- S&P500 FDX. Retrieved 02/19/2019. Web. http://www.standardandpoors.com/indices/sp-500/en/us/?indexId=spusa-500-usduf–p-us-l–
- U.S. Government Bonds. Treasury & Municipal Bond Yields – Bloomberg. Retrieved 02/19/2019. Web. http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/
