5 Things FedEx Corporation Management Wants You to Know

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FedEx is building upon its competitive advantages to drive long-term earnings growth.

Last week, FedEx (NYSE:FDX) reported solid earnings for the final quarter of its 2016 fiscal year. Following the earnings report, FedEx’s executive team spent an hour answering questions from the analyst community. Here are five highlights related to FedEx’s long-term prospects, its recently completed acquisition of TNT Express, and the company’s plans for the coming year.

FedEx has a wide moat

[FedEx Ground has] 37 hubs. The size of these things are 250 acres to 300 acres. They handle tens of thousands of packages. The miles driven by FedEx Ground per year is 1.2 billion miles and Freight is in the same capacity level. So these upstream moats are very substantial…
— FedEx CEO Fred Smith

For the past few decades, FedEx has faced two main competitors in the U.S.: United Parcel Service (NYSE:UPS) and the U.S. Postal Service. Recently, investors have started to wonder whether a new company could try to enter the parcel delivery business — or if e-commerce giant Amazon.com could feasibly set up its own internal delivery network.

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During the earnings call, FedEx founder and CEO Fred Smith argued passionately that this is not the case. He detailed the huge capital investments necessary to sort millions of packages and carry them between cities. FedEx, UPS, and the post office have this infrastructure. It would probably be prohibitively expensive for another company to replicate it.

Big synergies expected from the TNT merger

I’ve looked at it now for a lot of months, and they have the best road network in Europe by far. And when you layer all of our international businesses around the world coming into Europe at that efficient, productive, low cost network and you add it to the European network on its own, all of a sudden you start multiplying the benefits and they are very high.
— FedEx Express President and CEO Dave Bronczek

Up until now, FedEx has lagged DHL and UPS in the European market. The key rationale for FedEx’s decision to spend nearly $5 billion to buy TNT Express was to reverse this situation by gaining access to the latter’s large European road transport network.

The TNT acquisition has at least leveled the playing field. But FedEx management went further last week, stating that TNT’s road network in Europe is significantly better than those of DHL and UPS. Combining that road network with FedEx’s strong position in the U.S. and Asia should lead to big opportunities for incremental revenue growth and cost savings.

Reference: http://www.fool.com/investing/2016/06/27/5-things-fedex-corporation-management-wants-you-to.aspx

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