It's football season once again, folks, and as the Washington Redskins take the field here in D.C. (well, Maryland, actually, but the Landover Redskins just doesn't have the same ring), the company that owns the naming rights to said field, FedEx (NYSE:FDX), is about to start up something of its own: its first quarterly earnings report for its fiscal year 2007. The numbers are due out Thursday morning.

What analysts say:

  • Buy, sell, or waffle? 18 analysts follow FedEx, with eight voting buy and 10 saying sell.
  • Revenues. For the past two quarters, analysts have, on average, predicted 9% quarterly revenue growth from the shipping titan. Tomorrow is no different, and the sales target is at $8.4 billion.
  • Earnings. Profits are predicted to rise 22% to $1.52 per share.

What management says:
In FedEx's last earnings report, CEO Fred Smith minced no words in describing fiscal 2006 as a year of "record financial results," and fiscal 2007 as enjoying "solid economic growth in the U.S. and in international markets," leaving Smith "optimistic" about being able to profitably grow the company's business in the coming year.

More specifically, Smith said FedEx will report between $1.45 and $1.60 per share in profits on Thursday, and $6.45 to $6.80 by the end of the year. The firm aims to invest $2.9 billion in capital expenditures, of which 25% will be maintenance capex (so called because it's necessary just to keep the business running as is), with the remaining 75% spent to expand the business. If it merely matches last year's stellar $3.7 billion in operating cash flow, that would still leave $800 million in free cash flow for the year.

What management does:
On the margins front, things look just as good. Operating margins and net margins both continue to expand, despite all the investments in capital improvements.

Margins %





















All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Let me preface the following by saying that in his most recent six-month update, David Gardner, co-lead analyst at Motley Fool Stock Advisor and the man who picked FedEx for its portfolio, says: "The company is looking healthier than ever." That said, he also notes: "After a long period of infrastructure build-out, return on invested capital is improving."

To my mind, there are two ways of looking at that statement: long-term and short-term. Long-term, you can say to yourself: Sure, FedEx aims to sink almost $3 billion into capex this year, but at least it's got a good record of making these kinds of investments pay off. In contrast, the short-term investor might see that number and sigh in frustration that the "long period of infrastructure build-out" that David mentions appears to be anything but over.

Which view should you take? Well, I'd humbly submit that with FedEx up 87% since David recommended it in January 2003, versus an S&P index that's risen less than half as much, taking the long-term view has proven more profitable to FedEx investors. And speaking of investing, if you're interested in seeing what other long-term investments David likes, you can see his entire scorecard when you take a free trial of Stock Advisor.


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Fool contributor Rich Smith has no interest, short or long, in any company named above. The Fool's disclosure policy ships for one flat rate.