FedEx (NYSE:FDX), a Motley Fool Stock Advisor recommendation, released its fiscal third-quarter results on Thursday, and there's little question that the transportation and business services outfit delivered a strong performance. Nevertheless, investors were less than impressed, bidding the stock down slightly. The tepid response appears to have been a reaction to FedEx's worries about fuel prices. While fuel costs could put a damper on margins, the broad strength across FedEx's business lines should mitigate some of these concerns.
The Memphis, Tenn.-based firm disclosed that its top line grew 21% to $7.34 billion in the quarter, while net income surged 53% to $317 million. These aggregate numbers are impressive, but examining the company's individual business units presents an even prettier picture.
FedEx is enjoying higher returns as it fills its capacity, while at the same time it is keeping an eye on expenses and productivity. Operating margins grew solidly in three of the company's segments. FedEx Express, the firm's largest unit, saw its operating margin jump by an impressive 1.9% to 6.9%, while the ground and express units likewise saw significant improvements. The newly acquired FedEx Kinko's unit is somewhat of a laggard with low 2.2% margins, but the Kinko's acquisition is still relatively fresh, and the strategy of having a retail storefront for the FedEx name still seems like a sound move.
FedEx also clearly thinks that more growth is on the way. The firm expects to have made $2.3 billion in capital expenditures by the end of this fiscal year in May and it has received approval from U.S. authorities for three new flight frequencies into China. These are not the moves of a company worried about where its growth is coming from.
Granted, fuel might still take a bite out of the company's bottom line next quarter. But the real concern should be whether fuel prices will take the steam out of the global economy. For as long as the global economy chugs ahead, FedEx's prospects look strong.
For more on FedEx, check out these articles:
Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.
