There are some things just inconsistent enough to make life interesting. Returning home with your Chinese takeout, for example -- will it be the orange peel chicken you ordered, or will you instead find a surprise like mu shu pork? Or there's the passenger window of my Mercury Grand Marquis -- will it work today? I don't know, but those little curveballs keep you on your toes, don't they? Well, with all due respect to Chinese takeout and my cursed passenger window, I'm obviously laying the sarcasm on pretty thick. In contrast, there is nothing sarcastic about FedEx
In the first quarter, the company yet again achieved double-digit top-line growth, adding nearly three-fourths of a billion dollars in revenue from the year-ago level. FedEx is such a fantastic growth story because so many global trends favor its business model. But trends like international development and online shopping are only part of the story -- how the company treats its international associates is also an important part of its success. In this edition of Fool on Call, we will investigate these topics through FedEx's latest conference call, focusing our attention on these areas:
- Treating international associates right
- International growth fuels FedEx
FedEx . globally favored . by employees?
What I found to be most impressive in FedEx's latest conference call wasn't its revenue growth, or discussions regarding the efficiency of its operations, or its expansion efforts. Certainly, these are things that set it apart from many other transports, but there is another quality that I believe also gives it a competitive advantage: treating employees right.
Sam Walton in Sam Walton: Made in America identified the importance of treating your "associates" with respect as one of his top 10 priorities in building a successful business. The principle seemed to work well for him, as he and his employees built the envy of the retailing world in Wal-Mart
In the question-and-answer portion of FedEx's earnings conference call, topics ranged from fuel surcharges to shipment volumes. Important issues, certainly, but what about a question like, "What did you do in China to be named as one of the top 10 executive brands there? Or, in Latin America, you were rated among the top 100 best companies to work for -- why do employees there like to work for you? In Mexico, you ranked as the No. 1 place to work, and in Brazil you were No. 4 -- what sets you apart from other employers in those regions?" Yep, these were achievements FedEx's leadership thought it important enough to raise in the opening remarks, but not a single analyst followed up on these points.
You won't find questions like those in conference calls, regrettably, but in this Fool's opinion, it is qualities such as these that allow FedEx to establish trust with communities in Mexico, in Brazil, in China -- areas with significant growth opportunities in the years ahead, I might add.
Continuing its global expansion
And we don't have to look down the road for that growth . it is happening right now. FedEx is treating its international associates well, and the company is being rewarded in return, as can be seen in revenue figures from International Priority. Sales in this segment increased 17% compared to the same period a year ago, with volume increasing 6% and yield tacking on an additional 11% (yield is its return from the volume).
CFO Alan Graf stated during the question-and-answer portion of the call that the "spectacular performance" of International Priority is expected to continue as global commerce expands in "every region of the world." For fiscal 2007, FedEx sees a healthy global economy with world exports and global manufacturing "remaining strong."
Asia is expected to "outpace global growth on average." To capitalize on the opportunity, FedEx Express was "awarded four additional weekly flights to China by the U.S. Department of Transportation," bringing its weekly total to 30 for the region. The addition solidifies FedEx's position as the leading all-cargo transporter to and from the region.
Beyond adding more all-cargo flights, another way FedEx attracts international customers is by expanding its freight capacity. One analyst asked what was accelerating the company's volume growth, and management pointed to its ability to "bundle" its Express and Freight services. This selling point received a big boost with the acquisition of Watkins Motor Lines, also addressed in the opening remarks. The purchase will "substantially bolster" FedEx's transport biz in one-, two-, and three-day long-haul services.
Corporate social responsibility is a popular phrase in the business community these days. One important component of this movement has to do with being responsible to the needs of your employees. That should go without saying, right? Well, in a rapidly globalizing economy driven in part by outsourcing and international expansion, it becomes all the more important that American-based corporations expanding overseas be examples of goodwill, rather than ones of ill will. Doing so not only sets the bar for other businesses in the international community to follow, it also just makes good business sense.
So count me in as one who believes that how FedEx treats its international employees will play a significant role in how this company ultimately performs in the rapidly expanding global economy. This is one of those buy-it-and-then-tuck-it-away-for-40-years investments, due in large part to the fact that so many global trends complement its business model. But we shouldn't overlook the importance of the goodwill FedEx has established in China, Brazil, Mexico, and other international communities, which has laid the groundwork for solid growth in those regions for years to come.
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