Skip to content
AnalystLens

FedEx Annual Report, Year Ended May 31, 2006

Filing Date
Filed July 14, 2006
Period End
May 31, 2006
Security
FDX
In the record · 2016–202610-K1210-Q328-K159

FDX filed 12 annual reports (10-K), 32 quarterly reports (10-Q) and 159 current reports (8-K) between 2016 and 2026.

  1. Impairment8-K · May ’18May ’18
  2. Material agreement8-K · Mar ’20Mar ’20
  3. Leadership change8-K · Mar ’22Mar ’22
  4. Leadership change8-K · Jan ’26Jan ’26

01—Abstract

Summary

Summary of the 10-K filed July 14, 2006. Cited figures are marked; the original filing is the authoritative source.

FedEx's fiscal 2006 10-K (year ended May 31, 2006) shows a strong year.

Revenue rose 10% to $32.3 billiona, operating income rose 22% to $3.0 billion, and diluted EPS reached $5.83, up 24% from $4.72. Operating margin expanded 90 basis points to 9.3%. Growth came from international priority (IP) volume and yield, U.S. domestic yield gains, fuel surcharges, and volume growth at FedEx Ground and FedEx Freight.

Net income was $1.8 billionb and operating cash flow was $3.7 billion, which funded $2.5 billion of capital expenditures and $369 million of debt repayment while keeping the balance sheet solid. A one-time $79 million lease accounting charge in Q1 weighed on results. The main investor concerns are FedEx Kinko's, where operating income fell 43% to $57 million on weaker copy demand and competition, and the rising cost of growth.

Management plans roughly $2.9 billionc of capex in fiscal 2007 and is buying Watkins Motor Lines (about $780 million) and the DTW China express business (about $400 million), both expected to close in the first half of 2007. Management also expects SFAS 123R to reduce diluted EPS by about $0.15 in fiscal 2007. Risk factors include a pending FedEx Ground owner-operator classification challenge, a $60 million jury verdict against FedEx Ground in Issa & Rizkallah, a Satchell race discrimination class action, pilot contract negotiations, and fuel price volatility.

The filing also notes a grand jury subpoena received June 23, 2006 in a DOJ antitrust investigation of the air cargo industry. Management says it has no reason to believe FedEx is a target and is cooperating.

02—Key points

Key Highlights

  1. Revenue grew 10% to $32.3B and operating income grew 22% to $3.0B, with operating margin up 90 bp to 9.3%.
  2. Diluted EPS was $5.83, up 24% from $4.72 in FY2005, and net income reached $1.8B.
  3. FedEx Express segment operating income rose 25% to $1.77B, driven by IP volume growth (+8%) and yield gains; FedEx Ground operating income rose 17% and FedEx Freight operating income rose 37%.
  4. FedEx Kinko's operating income fell 43% to $57M, with copy-product revenue declining on competition and low-cost home printers.
  5. Operating cash flow was $3.7B, funding $2.5B of capex and $369M of debt repayment; cash rose to $1.9B.
  6. Pending acquisitions include Watkins Motor Lines LTL (~$780M) and DTW China express (~$400M), both expected to close in 1H 2007; FY2007 capex is guided to ~$2.9B.
  7. Legal exposure includes a $60M jury verdict against FedEx Ground (Issa & Rizkallah, with appeal expected), the FedEx Ground owner-operator classification litigation, and Satchell race discrimination class action with trial set for February 2007.

03—Questions

Frequently Asked Questions

  1. How did FedEx perform financially in fiscal 2006?

    FedEx grew revenue 10% to $32.3 billion and operating income 22% to $3.0 billion, with operating margin rising to 9.3%. Net income reached $1.8 billion, and diluted EPS was $5.83, up from $4.72. Results absorbed a one-time $79 million non-cash lease accounting charge in Q1 (about $0.16 per share).

  2. Which business segments drove growth, and which lagged?

    FedEx Express (IP and U.S. domestic yield) and FedEx Freight (LTL yield plus 6% shipment growth, with operating income up 37%) were the main drivers. FedEx Ground grew volume 8% and operating income 17%. FedEx Kinko's lagged, with operating income down 43% to $57 million as copy revenue fell.

  3. What is the outlook for fiscal 2007?

    Management expects revenue and earnings growth across the transportation segments, though slower than 2006, with global GDP growth around 3%. Expected headwinds include about $0.15 per diluted share from SFAS 123R, a tax rate of 38.0% to 38.5%, and higher capex (~$2.9B). Growth is expected in IP services, particularly Asia, and FedEx Kinko's is expected to be less profitable in the short term as it adds locations.

  4. What are the biggest risks and legal issues flagged in the filing?

    Key risks include fuel price volatility (surcharges lag fuel prices), capital intensity, pilot contract negotiations that could lead to work stoppages, and the classification of FedEx Ground owner-operators as independent contractors, which is being litigated. The $60 million jury award in Issa & Rizkallah against FedEx Ground may be material, and a DOJ grand jury subpoena related to an air cargo antitrust probe was received June 23, 2006.

  5. What are the balance sheet and capital allocation priorities?

    FedEx had $1.9 billion in cash, $2.4 billion of total debt, and stockholders' equity of $11.5 billion at May 31, 2006. It paid no share buybacks in 2006, paid $97 million in dividends (quarterly dividend raised to $0.09), and has $1.0 billion of revolver capacity plus a $1.0 billion shelf registration. Planned acquisitions (~$1.2 billion combined) are expected to be funded from cash and operating cash flow, with ratings of BBB (S&P) and Baa2 (Moody's).

04—Continue

← View all 10-K filings