10-KPeriod: FY2007

FEDEX CORP Annual Report, Year Ended May 31, 2007

Filed July 13, 2007For Securities:FDX

Summary

FedEx Corporation's 2007 10-K filing reveals a company experiencing solid revenue growth driven by its FedEx Ground segment and international services, alongside the significant acquisition of FedEx National LTL. While consolidated revenues increased by 9%, operating income saw a more modest 9% rise due to several factors impacting profitability. These include a $143 million charge for upfront pilot compensation and benefits related to a new labor contract, the timing lag in fuel surcharge adjustments, and operating losses within the newly acquired FedEx National LTL. Despite these headwinds, the company demonstrates continued strategic investment in its networks and services. The filing also highlights the company's substantial fleet of aircraft and vehicles, its extensive sorting and handling facilities, and its ongoing commitment to technological improvements and service expansion. Investors should note the company's focus on international growth, particularly in Asia and Europe, and the integration of recent acquisitions. The report also touches upon ongoing investigations by the DOJ and European Commission concerning potential anti-competitive behavior in the air freight industry, which FedEx states it is cooperating with and does not believe it has engaged in. The company expects continued investments in 2008, which may temper earnings growth in the short term but are aimed at long-term strategic advantages. The report indicates robust financial health with sufficient liquidity and strong capital resources.

Key Highlights

  • 1FedEx Express operates a substantial fleet of 669 aircraft as of May 31, 2007, comprising various models including Boeing MD11, MD10, DC10, Airbus A300, A310, and smaller turboprops and jets.
  • 2The company made significant capital expenditures in 2007, totaling $2.88 billion, with a substantial portion allocated to aircraft, facilities, and vehicles to support growth and modernization.
  • 3FedEx announced its intention to acquire approximately 90 Boeing 757-200 aircraft to replace its Boeing 727 fleet, signaling a commitment to fleet modernization and capacity expansion.
  • 4The company acquired FedEx National LTL for $787 million, significantly expanding its less-than-truckload (LTL) freight services, alongside other acquisitions in the UK and China.
  • 5The filing details a $143 million charge related to a new four-year labor contract with FedEx Express pilots, impacting operating expenses and net income.
  • 6FedEx is subject to ongoing investigations by the U.S. Department of Justice and the European Commission regarding possible anti-competitive behavior in the air freight industry.
  • 7The company's outlook for 2008 anticipates continued investment in global networks and service improvements, with revenue growth expected to moderate due to a softening U.S. economy.

Frequently Asked Questions

FedEx's revenue growth in fiscal year 2007 was primarily driven by strong volume growth in the FedEx Ground segment and continued growth in FedEx Express International Priority (IP) services. The acquisition of FedEx National LTL also contributed significantly to revenue, adding approximately $760 million.

Operating income growth in fiscal year 2007 was moderated by several factors, including a $143 million charge related to upfront compensation and benefits for pilots under a new labor contract, the timing lag in fuel surcharge adjustments at FedEx Express which did not fully offset higher fuel costs, and operating losses incurred by the newly acquired FedEx National LTL. Additionally, slower economic growth led to weaker volumes in the second half of the fiscal year for FedEx Express and FedEx Freight.

FedEx is investing heavily in its fleet and network. This includes a multi-year program to acquire and modify approximately 90 Boeing 757-200 aircraft to replace its older Boeing 727 fleet. Furthermore, the company is acquiring new Boeing 777 Freighter aircraft to enhance its long-haul, transoceanic capabilities. Significant investments are also being made in expanding and improving facilities across all segments, including a new Asia-Pacific hub in Guangzhou, China, planned to be operational in 2009.

Yes, FedEx is cooperating with investigations by the U.S. Department of Justice and the European Commission into possible anti-competitive behavior in the air freight transportation industry. The company states it does not believe it has engaged in any anti-competitive activities. Additionally, FedEx Ground faces numerous lawsuits alleging that its owner-operators should be classified as employees rather than independent contractors, which could lead to increased operating costs and capital outlays if adverse determinations are made.