Federal Express

Federal Express

Home : New York Stock Exchange (www.nyse.com)

Federal Express

Stock Code : FDX

Homepage : www.fedex.com

Federal Express is a well know logistics handling company. It would be useful to learn about the details of the company from its corperate website by clicking on the above homepage link.

Federal Express, Brief Commentary

I combed through the financial statements and calculated the usual ratios. It gave me a feel good factor on the company. I list below the free cash flow to firm that i computed.

2012 2011 2010 2009 2008 2007
FCFF 1,855 1,215 1,239 1,189 1,180 2,419
FCFF per share basic $ 5.89 3.86 3.97 3.82 3.82 7.78
FCFF per share diluted $ 5.85 3.83 3.95 3.81 3.78 7.75

It looks comfortable doesn’t it?

However, there’s something that i do not find it comforting. Federal Express booked a large pension and post retirement increase in excess of USD3billion from FY 2011 to FY2012. I extracted the numbers and highlight them below.

   Pension, postretirement healthcare and other benefit obligations 5,582 2,124

This is coupled with an explanation that appears to be so complicated that i couldn’t make a sense out of it. Interestingly, the business also booked an loss on equity of USD2.5billion from its balance sheet. I view that the business must have made some equity loss adjustment through the balance sheet but not a financial statement.

I couldn’t make up why is there a sudden doubling of this pension and post retirement benefits, but i could conclude that it must be something that they might not want (or not by law required) to show through the profit and loss statement.

There’s the other thing that i find it quite disturbing. It is the persistent existence of goodwill (table below is a highlight). Federal Express reported in the annual report 2012 (just take the latest, to get a flavour of the way goodwill is treated) that there were acquisitions and amount paid in excess was accumulated into goodwill and parked under Fedex Express Segment. There appears to be accumulated impairment charges, but there is no evidence of amortization.

(In millions, except share data) 2012 2011 2010 2009 2008 2007 2006 2005
   Goodwill 2,387 2,326 2,200 2,229 3,165 3,497 2,825 2,835

It a down market, what companies normally do is to take a charge of the goodwill from the balance sheet as they realised that it is not making the money that is used to be valued. This will be bad news to shareholders. The impairment could be done through the profit and loss statement. This will affect analysts looking at business through the Profit and Loss statement.

Federal Express, conlcusion

The company should not have an issue as it continues to make money. In fact, it is trading at a healthy price of USD106 (8 Feb 2013) giving a price to earnings (from FY2012) ratio of 16.5 or price to free cash flow to firm (FY 2012) ratio of 18.1, both on diluted basis.

However, investors must be wary on the downside due to the intriguing Pension and Postretirement Benefits and the treatment on Goodwill. Federal Express could slide downwards faster than the market in time of a market downturn. Just in case, remember to key in a stop loss to Federal Express if you have it in your portfolio.

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