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FedEx Moves Aggressively to Return Cash to Shareholders

Adam Levine-Weinberg
October 15, 2013

Since this past spring, I have highlighted the investment opportunity in FedEx (NYSE: FDX) here at The Motley Fool. The company is in the midst of a three-year restructuring process that will cut costs in its express business, leading to significant margin growth. Moreover, unlike many companies that restructure, FedEx is still growing revenue, especially in its ground business.

This combination of revenue growth and margin growth made FedEx a compelling investment opportunity back in the spring, especially as it was trading at just 16 times trailing earnings. On Tuesday, FedEx gave investors yet another reason to cheer: The company announced that it will return a significant amount of cash to shareholders through share repurchases.

Growing cash stockpile
While FedEx competes in a capital-intensive industry, it has historically generated plenty of cash to fund its growth without taking on a lot of debt. FedEx is investing $4 billion this year in order to replace older, fuel-guzzling aircraft and to lay a foundation for growth in its U.S. ground-shipping business.

FedEx is investing heavily for growth.

Despite these heavy investment plans, FedEx should generate plenty of cash in its operations to cover the costs. FedEx generated operating cash flow of $4.7 billion in its most recent fiscal year, and $4.8 billion the year before that.

With such strong cash flow, FedEx has been reliably growing its cash and investments stockpile for the past few years. In fact, the company's cash balance more than doubled from $2.3 billion to $4.9 billion between May 2011 and May 2013. Since FedEx generates cash so reliably, there's no reason the company needs to carry such a large cash reserve.

Time for a nice buyback
Evidently, FedEx's board of directors came to the same conclusion recently. On Tuesday, the com