Skip to content
AnalystLens

FedEx Annual Report, Year Ended May 31, 2007

Filing Date
Filed July 13, 2007
Period End
May 31, 2007
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 13, 2007. Cited figures are marked; the original filing is the authoritative source.

FedEx's fiscal 2007 10-K (fiscal year ended May 31, 2007) shows a company growing revenue and earnings while absorbing several headwinds.

Revenue rose 9% to $35.2 billiona, operating income rose 9% to $3.28 billion, and diluted EPS grew 11% to $6.48, though operating margin was flat at 9.3%. Growth was driven by FedEx Ground volume (average daily volume up 11%), FedEx Express International Priority services, and the acquisition of Watkins Motor Lines (now FedEx National LTL), which added roughly $760 million to revenue. Results were pressured by a $143 million upfront pilot labor contract charge, fuel surcharge timing lags, softening LTL volumes, and operating losses at FedEx National LTL.

FedEx Kinko's remained weak, with operating income falling to $45 millionb. Management guided to a more cautious fiscal 2008. Revenue growth is expected to moderate and earnings are expected to fall below the company's long-term goal of 10% to 15% annual earnings growth, reflecting a softer U.S. economy and heavy planned investment.

Capital expenditures are projected at about $3.5 billionc, up from $2.9 billion, with spending focused on the Boeing 757 and 777 Freighter fleet renewal, FedEx Ground network expansion (targeting about five million packages per day of pickup capacity by 2012), and FedEx Kinko's retail expansion of roughly 300 new centers. The 2007 acquisitions totaled about $1.3 billion in cash, including DTW Group ($427 million), Watkins ($787 million) and ANC ($241 million), alongside PAFEX. Investors should also weigh balance sheet and legal items.

Cash fell to $1.57 billiond, operating cash flow was $3.56 billion against capex of $2.88 billion, and the company paid a dividend increase to $0.10 per quarter. Notable risks include FedEx Ground's owner-operator classification litigation, wage-and-hour class actions, and antitrust investigations by the DOJ, the European Commission and the ACCC into air freight pricing. Pension accounting changed materially: SFAS 158 reduced shareholders' equity by $982 million, and the company is modernizing retirement plans starting in 2008.

02—Key points

Key Highlights

  1. Revenue up 9% to $35.2 billion and diluted EPS up 11% to $6.48 for fiscal 2007, with operating margin flat at 9.3%.
  2. FedEx Ground was the strongest performer: revenue up 14% to $6.0 billion, average daily volume up 11%, and operating income up 15% to $813 million.
  3. The $143 million pilot labor contract upfront charge reduced second-quarter net income by about $78 million, or $0.25 per diluted share.
  4. Acquisitions totaled roughly $1.3 billion in cash in 2007, including Watkins/FedEx National LTL ($787 million), DTW Group China ($427 million), and ANC UK ($241 million).
  5. Management expects fiscal 2008 earnings growth below the 10% to 15% long-term target, with capex rising to about $3.5 billion.
  6. FedEx Kinko's operating income fell 21% to $45 million, with operating margin down to 2.2%, as the company expands to roughly 2,000 centers.
  7. The company faces antitrust investigations related to air freight (DOJ, European Commission, ACCC) and ongoing FedEx Ground owner-operator classification litigation.

03—Questions

Frequently Asked Questions

  1. How did FedEx perform financially in fiscal 2007?

    Revenue grew 9% to $35.2 billion, operating income grew 9% to $3.28 billion, and net income rose 12% to $2.02 billion. Diluted EPS was $6.48, up from $5.83. Operating margin held at 9.3%, as growth was offset by the pilot contract charge, fuel surcharge timing lags, and weaker LTL and Kinko's results.

  2. What is driving the company's growth and what are the main risks?

    Growth is driven by FedEx Ground volume, International Priority express services, and acquisitions. Key risks include fuel price volatility (fuel surcharges lag actual costs), slowing U.S. economic activity hitting volumes at FedEx Express and FedEx Freight, the legal status of FedEx Ground's owner-operators as independent contractors, and the antitrust investigations into air freight pricing. Competitive pricing pressure from UPS and DHL is also a continuing risk.

  3. What does management expect for fiscal 2008?

    Management expects revenue growth to moderate, with growth led by FedEx Ground, the full-year benefit of FedEx National LTL, and international expansion at FedEx Express. Earnings are expected to fall below the 10% to 15% long-term growth target because of the softer U.S. economy and planned investments. Capital expenditures are projected at about $3.5 billion, and the company expects to fund them from operating cash flow.

  4. How strong is the balance sheet and how is cash being used?

    Cash and equivalents declined to $1.57 billion from $1.94 billion after $1.3 billion in acquisitions and $2.9 billion in capex, against $3.56 billion of operating cash flow. Long-term debt was about $2.0 billion, plus $639 million current, and the company has a $1.0 billion undrawn revolver. Credit ratings are BBB (S&P) and Baa2 (Moody's). Shareholders' investment rose to $12.7 billion, though it absorbed a $982 million reduction from adopting SFAS 158 pension accounting. Dividends rose to $0.10 per quarter.

04—Continue

← View all 10-K filings