To The Moon

$FedEx(FDX)$T released the earnings of fourth quarter fiscal year 2022 as of the end of March. With the excellent guidance of the new fiscal year, the stock gained a3% in post-hour trading.

For Q4 results,

• Revenue was US $24.39 billion, an increase of 8% year-on-year, slightly missed market consensus of $24.57 billion;
• Among them, income from express delivery business was 11.94 billion, which was basically the same as the market expectation of 11.95 billion US dollars; freight revenue was US $2.76 billion, better than the market consensus of US $2.51 billion;
• Non-GAAP's operating profit was US $2.23 billion, a year-on-year increase of 13.6%, and it is expected to be US $2.28 billion;
• EBITDA is 2.47 billion US dollars, expected to be 3.30 billion US dollars, and net profit is 1.80 billion US dollars, up 32% year-on-year, expected to be 1.81 billion US dollars, which is basically flat;
• Non-GAAP EPS is $6.87, expected to be $6.88While the diluted EPS was US $6.87, which was flat than expected.
• Capital expenditure reached $2.38 billion, up 41.7% year-on-year.

FedEx's business this quarter has several characteristics:

1. Yield for parcels rise because of rising cost in supply chain and transportation.The revenue of a single package in the United States was 22.08 US dollars, up 20% year-on-year, and also exceeded the expected 20.56 US dollars; After exchange rate adjustment, the individual income of international parcels was US $59.8, up 17% year-on-year, exceeding the expected US $55.6. The impact of the price increase will continue, and at the same time, it will bring higher income to the company.
2. oThe volume dropped significantly.The average daily parcels of express delivery were 5.82 million, a year-on-year decrease of 11% and less than the expected 6.16 million. Among them, the average daily parcels in the United States were 2.99 million, down 8.4% year-on-year, lower than the expected 3.17 million; The daily average number of international parcels was 2.82 million, down 13% year-on-year, lower than the expected 2.98 million. Judging from this value, the domestic performance recovery in the United States is better than that in the world. As the income brought by the increase in freight can cover the decline in package volume, the overall performance is still rising.
3. The freight recovered rapidly, Freight revenue was the biggest part of the overall exceeding expectations, with revenue per Hundredweight of US $35.6, up 30% year-on-year, setting the highest growth rate in recent years and higher than the expected US $31.8. Operating profit margin of freight business increased by 570 basis points to 21.8% due to the increased marginal effect brought by price increase.
4. Among the expenditure items, the cost of shelf insurance, employee wages and purchasing and transportation rates all increased to a large extent, which brought about an impact of 130 million US dollars to the company. The company introduced a new 401 (k) plan for new employees in January 2022, replacing the original pension plan. In addition, capital expenditure on automation has also increased. At the same time,Capital expenditure is expected to reach $6.8 billion in the coming year.

As for the performance guidance for the next fiscal year 2023, the company also made some interesting statements.Because FedEx has to make a certain "mark-to-market" (MTM) adjustment in accounting calculation methods,  such as employee pension, investment business adjustment, etc. At the same time, the company can't confirm the effective tax rate, so it can't give guidance.

However, it also provides certain profit guidance, which is before MTM adjustment. It is expected that the diluted EPS in fiscal year 2023 will be between 22.45 and 24.45 US dollars, and the profit margin will expand after adjustment, which is also a relatively large range.However, the whole figure was also higher than the previous market expectation of $22.6.

The reason why there is so much room for adjustment and relatively "rich" conditions are set is to leave some room for the uncertainty of performance changes.

After all, the current inflation cycle makes the whole logistics industry full of great uncertainty. Industrial activity has been stable in May, but according to the PMI data of the United States in June, the initial value has dropped sharply, and inventory replenishment is slowing down, which will restrain freight demand to some extent.

The change of pension plan may bring more costs to the company in the short term, but in the long run, the new pension plan will reduce the long-term debt of the company and benefit the long-term profit margin.

For shareholders, the best news is to continue to overweight repurchase. The company bought back $2.2 billion in fiscal year 2022, while it plans to buy back $1.5 billion in the next six months.