Zacks_Analysts' Blog : FedEx Raises Domestic Rates Again - Analyst Blog

FedEx Corporation (FDX) will reportedly raise its freight service prices for the next year. The company’s ground and home delivery rates have been raised by 4.9%, effective January.

The hike follows an average rate hike of 3.9% in U.S. domestic, export and import services implemented in October. Concurrently, FedEx had also introduced a general rate hike of 6.75%.

FedEx, along with its peers like United Parcel Service (UPS) have been successful in implementing rate hikes even amid a gloomy economic outlook, given the strengthening of freight market fundamentals. Further, the softness in U.S. postal service’s business has also aided these companies to gain significant market share.  

Despite the price hike, FedEx expects to sustain top-line growth in Ground and Freight segments on strong yields. Part of this momentum is expected to come from international expansion. Moreover, FedEx expects growth in Asia, Latin America, China, India, Mexico and Brazil to augur well. The company also aims at enhancing existing routes and making strategic acquisitions. Accordingly, it bought AFL Pvt. Ltd, a logistics, distribution and express business in India that improved its position in the freight market. Its acquisition of MultiPack, a Mexican domestic express package delivery company, in the second quarter this year was also in sync with its growth strategy.

Further, the company is realigning its network capacity to match weak international volumes due to the drop in Asian demand. Consequently, FedEx has taken several initiatives including reducing flights and frequencies as well as redeploying equipment in other networks to reduce costs.

We believe all these strategic decisions would lead to improved revenue, margins, earnings and cash flow this year and beyond. However, increased investments, competitive threats, unionized workforce and steeper fuel prices could limit the upside potential of the stock.

We are currently reiterating our long-term Neutral rating on FedEx. The stock retains a Zacks #3 (Hold) Rank for the short term.