FedEx (NYSE:FDX) will take on responsibility for the U.S. Postal Services' Global Express Guaranteed international delivery service in a deal that seals the company's position as a dominant partner for the USPS.
In winning the new contract, which will take effect July 1, the delivery and logistics specialist displaces competitor DHL Worldwide Express and builds on what has evidently been a fruitful relationship. Under its current deal with the mail service, FedEx furnishes domestic air transportation. Notably, the partners entered a fourth addendum to that agreement in March that allows FedEx to continue carrying incremental pounds of mail at higher volumes than spelled out in the original agreement. FedEx's capacity to scale up as necessary no doubt is one of the factors that makes it an attractive partner, even as this same capability adds to the company's bottom line.
While it is unclear how profitable the new Postal Service business will be, the relationship's value from a marketing standpoint appears obvious. Under the new pact, all packages and shipping labels will be co-branded with both USPS and FedEx logos. The promotional power of this tie-up, when coupled with the additional exposure FedEx will receive through its acquisition of Kinko's, could help the company make further gains on its larger rival, UPS (NYSE:UPS).
These catalysts and other factors make it easy to see why FedEx is a Motley Fool Stock Advisor pick. As Fool contributor Seth Jayson wrote, the company has achieved some impressive margin improvement for such a massive enterprise. Nor is the firm resting on its laurels, as it expects margins in its Express business to increase significantly again in fiscal 2005. Perhaps reflecting heightened confidence, FedEx also recently bumped up its quarterly dividend.
The company is most of the way through fiscal 2004 and is already predicting earnings will grow 14% to 24% in 2005 to $4 to $4.20 per share. With the economy expanding and FedEx's latest initiatives still falling into place, the firm's chances of hitting the higher end of those expectations seem good.
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Fool contributor Brian Gorman is a freelance writer living in Chicago, Ill. He does not own shares of any companies mentioned here.
