I've heard it said that FedEx (NYSE:FDX) is an economic canary: If it's doing well, the economy is doing well (because it means that products are being bought, sold, and shipped all over the country). If that's true, this earnings release is probably worth some scrutiny.
Revenue rose 10% in the fourth quarter, while operating margins improved by more than a point and operating income climbed 25%. Volume growth in the Express and the Ground operations was also solid, as the average daily package volume (in pounds) rose about 4%.
The good news/bad news here is that there really isn't much in the way of news. The three main businesses -- Express, Ground, and Freight -- all continue to execute well. Express revenue was up 10% (with operating income rising 30%); revenue for Ground and for Freight grew 15%, while operating income grew 20% for Ground and 49% for Freight.
What might be a cause for concern, though, is how that growth came to be. FedEx's poundage was up, but units were down slightly, and with average yields increasing by about 10%, it looks like the growth came from price inflation. In other words, underlying business may not be growing all that well (in volume terms), though the company is doing quite well with passing along better pricing.
I'll be curious to see how UPS (NYSE:UPS) did when it reports its earnings, but the shipping business is certainly one that's worth watching. If, in fact, truckers, railroads, and logistics companies are increasingly relying on price inflation to deliver the revenue growth, that doesn't strike me as an especially positive development for overall economic growth.
FedEx may be something of a darling, but it's earned it. I can't say that the stock looks abundantly cheap today, but there have been only a few times in the last 25 years when buying FedEx didn't pan out fairly promptly. A well-run company with a good moat and good returns on capital doesn't come around every day, so I'd be in no hurry to hop off the bandwagon.
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Fool contributor Stephen Simpson but has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
