FedEx Corporation — Form 10-K Summary
Business context and reporting period
FedEx provides express, ground, less-than-truckload freight, logistics, e-commerce and business services through four reportable segments: FedEx Express, FedEx Ground, FedEx Freight and FedEx Services. The filing is the annual report for the fiscal year ended May 31, 2011, not a fiscal 2010 fourth-quarter filing. It also reports fourth-quarter FY2011 results and compares them with fourth-quarter FY2010.
Financial results and position
| Metric | FY2011 | FY2010 |
|---|---|---|
| Revenue | $39.304 billion | $34.734 billion |
| Operating income | $2.378 billion | $1.998 billion |
| Operating margin | 6.1% | 5.8% |
| Net income | $1.452 billion | $1.184 billion |
| Diluted EPS | $4.57 | $3.76 |
| Cash from operations | $4.041 billion | $3.138 billion |
| Capital expenditures | $3.434 billion | $2.816 billion |
| Cash and cash equivalents at year-end | $2.328 billion | $1.952 billion |
Operating cash flow less capital expenditures was approximately $607 million in FY2011. The effective tax rate was 35.9%, down from 37.5%. Total assets were $27.385 billion and stockholders’ investment was $15.220 billion at May 31, 2011. Balance-sheet debt was $1.685 billion, including current and long-term amounts; the company also disclosed $13.992 billion of future minimum operating-lease payments, generally not recorded as balance-sheet debt.
Liquidity included a $1 billion revolving credit facility, entirely available at year-end, with no commercial paper outstanding. The adjusted-debt-to-capital covenant ratio was 0.5 against a maximum of 0.7. Management said available cash, operating cash flow and financing sources should meet expected needs.
Material changes versus comparable periods
- FY2011 revenue rose 13% and operating income rose 19% from FY2010, reflecting stronger volumes and yields across transportation businesses, including improved fuel surcharges and pricing.
- FedEx Ground revenue increased 14%; operating income rose 29% to $1.325 billion, and margin expanded to 15.6% from 13.8%.
- FedEx Express revenue increased 14% to $24.581 billion and operating income rose 9% to $1.228 billion; margin edged down to 5.0% from 5.2%. International Priority package volume grew 10%.
- FedEx Freight revenue increased 14% to $4.911 billion, but the segment reported a $175 million operating loss, versus a $153 million loss in FY2010. Management said the segment returned to profitability in the fourth quarter, mainly on stronger yield.
- Fourth-quarter FY2011 revenue was $10.552 billion, operating income $888 million, net income $558 million and diluted EPS $1.75, compared with $9.428 billion, $696 million, $419 million and $1.33, respectively, in fourth-quarter FY2010.
- FY2010 earnings comparisons are affected by $1.2 billion of impairment and other charges recorded in FY2009, primarily related to goodwill and aircraft.
Outlook, commentary, risks and unusual items
- Management expected moderate global economic growth and yield initiatives to drive a significant earnings improvement in FY2012, with international services the primary expected earnings driver. It expected FedEx Freight to be profitable throughout FY2012 and FedEx Ground to continue significant growth. No numerical EPS guidance was provided in the supplied text.
- FY2012 capital expenditures were forecast at approximately $4.2 billion; about 59% was expected to support growth initiatives. Planned investment includes aircraft, vehicles, FedEx Ground network expansion and freight equipment. Required U.S. pension contributions were estimated at approximately $500 million.
- FY2011 included $133 million of costs associated with combining FedEx Freight and FedEx National LTL, and a $66 million reserve for the ATA Airlines lawsuit. Severe weather disrupted networks and added costs. Higher fuel, maintenance, pension and medical costs, and restored employee compensation programs also weighed on results.
- Fuel-price volatility and the lag in fuel-surcharge adjustments may affect earnings and customer demand. Management said the outlook depended on continued economic improvement, particularly in industrial production.
- FedEx Ground faces numerous lawsuits and administrative proceedings over its independent-contractor model. The company said a material loss or changes to the model were reasonably possible, but the amount or range could not be estimated; management did not believe a material loss was probable.
- Other notable legal matters include the $66 million ATA Airlines jury award, which FedEx appealed, and a California paystub class action for which a material loss was considered reasonably possible but not estimable. Antitrust investigations and other litigation are also disclosed.
- Other risks include competition and pricing pressure, labor and regulatory changes, pension assumptions and funding, cybersecurity or network disruption, aviation safety/security rules, and climate-related regulation. The filing reports an unqualified auditor opinion and effective internal control over financial reporting.
Most important facts for investors to verify
- Whether FY2012 earnings growth and Freight profitability were achieved, and how results compared with management’s qualitative outlook.
- Whether planned $4.2 billion capital spending, aircraft commitments and pension contributions were funded as expected, and the effect on cash generation.
- Developments and potential financial exposure in independent-contractor cases, the ATA appeal, the California paystub action and antitrust matters.
- Whether fuel surcharges kept pace with fuel costs and whether higher fuel prices affected volumes, service mix or yields.
- The full burden of operating leases and other contractual commitments, alongside reported debt and liquidity.