Fedex Business Analyst Salary
Fedex Business Analyst Salary – FedEx Corporation (NYSE: FDX ) recently announced some high FY2025 targets of $105 to 110 billion in revenue and a 10% operating margin. The current market offers zero control for these purposes, due to many headwinds such as increased labor costs and energy pressure. FedEx is a classic “show me” story, and I’m staying on the sidelines until the company shows signs of being able to close the gap on the service side or if the aforementioned issues subside.
During its recent earnings call on June 29th, FedEx management revealed some lofty FY2025 goals (Figure 1). By FY25, FedEx wants to achieve $105 to $110 billion in revenue and improve profits to a 10% overall operating margin, targeting $3 to 4.5 billion in operating profit improvement.
Fedex Business Analyst Salary
From a base of $93.5 billion in FY22 (Figure 2), using a mid-point management capital growth target of 4-6% would result in revenues by 2025 of $108.3 billion.
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For example, from 2012 to 2022, their revenue grew at 8.1% CAGR. From 2017 to 2022 (post TNT’s big acquisition in 2016), revenue grew at a 9.2% CAGR. So management’s target of 4-6% revenue CAGR is realistic, especially if higher prices are sustained and FedEx can pass on debt to customers. Historically, FedEx has increased rates by about 5% a year (Figure 3).
Over the past ten years, FedEx has generated operating margins from 3.5% to 8.4% (Figure 4), with an average of 6.4%. In fact, FedEx’s highest operating margin in the last 20 years was in 2006 and 2007 when the operating margin was 9.3%. To find a year when operating margins exceeded 10%, we have to go back 35 years to 1987, when FedEx posted an 11.5% operating margin on $3.2 billion in revenue. Is it possible to get an operating margin > 10% in FY2025? It’s clear. Is it possible? It’s unlikely.
FedEx Express, which accounts for 49% of revenue, is the largest division of FedEx and therefore profitability is the most important factor in FedEx achieving its overall goals. For Express, management wants to raise the operating margin to 8-9% by FY2025, from 6.4% in FY2022 (Figure 5)
From the side of FedEx operating data, we can see that FedEx Express generated an operating margin of 2.8% to 6.4% from FY2018 to FY2022, so 8-9% operating margin seems to be extended (Figure 6) .
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If we go back further, we can see that FedEx Express achieved the target performance at the same time, in 2016, when it achieved 9.7% (Figure 7).
FedEx management cited in its 2016 annual report that it achieved a $1.6 billion improvement in operating expenses through its “Value Improvement Program” (Figure 8).
What is not mentioned is that most, if not all, of the increase in profits came on the back of the drop in fuel prices between 2013 and 2016 (Figure 9). As a percentage of revenue, fuel costs fell from 15.2% in 2013 to 7.9% in 2016 or about $2.1 billion in actual fuel expenses, while revenue decreased by only $1 billion. There is no doubt that a large part of the lower income is due to lower fuel costs, but the effect of lower oil prices on the operation cannot be underestimated.
Interestingly, post-2016, we are seeing Transportation Purchases jump from less than 10% of revenue to 13 to 14% of revenue. Perhaps this is FedEx’s way of managing expenses, by eliminating a large part of the journey and leaving the third party flexible, like how FedEx Ground business is run.
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In any case, we can see that fuel is a big variable for the profit of FedEx Express. From 2021 to 2022, fuel went from 5.8% to 9.6% of revenue, although fuel costs may slow it down. Over the years, assuming that oil does not continue to shoot as high as it did in FY2022, it is possible for FedEx to raise prices and reduce oil taxes and expenses (ie, raise the cost of land to offset high fuel costs and eliminate gasoline). billing, keeping prices increasing permanently).
On the other hand, we can see that salaries as a % of revenue fell YoY from 38.5% in 2021 to 35.9%. In fact, part of this may be due to the fact that fuel costs are filling the cost (the 2022 heavy fuel costs are 13.1%, 23.0% and 10.1% in US Domestic, International Export, and International Domestic business lines). However, salaries rose only 1.3% YoY while revenues rose by 8.9%, helping offset fuel costs. We do not believe that this low wage increase will be sustainable.
For example, according to the Atlanta Fed, wage growth is currently running at a rate of 6.7% (Figure 10). So if we can see the balance in fuel expenses as a % of revenue, we can see the cost of living is climbing back up. From 2008 to 2022, salary expenses reached 37.1% of revenue. From 2017 onwards (acquisition of TNT, bringing European cost structure), this figure reached 37.5%.
Overall, FedEx Express’ operating margin reached 5.7% from 2008 to 2022. Expecting an operating margin expansion of 160 to 260 bps from FY2022’s 6.4% with rising wages and fuel pressure is a bit of a stretch.
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For FedEx Ground which accounts for 36% of revenue, the target is for an operating margin of 11-12% by FY2025.
This goal appears to be achievable, as FedEx Ground achieved that level of profitability as recently as 2019 (Figure 12). Historically, FedEx Ground has been a very profitable business, with operating margins peaking at 18.4% in 2012. What caused the decline over the past decade and can it be reversed?
The two biggest drivers of price increases over the past ten years are salaries, which went from 15.2% of the share tax in 2012 to 21.4% in 2022, and purchased transportation, which went from 39.3% to 45.8% .
First, salaries rose from 17.9% of revenue in FY2020 to 21.4% of revenue in FY2022 or 74.9% dollar growth in two years, mainly because the COVID-19 created an increase in the demand for online shopping and home delivery services where the disease also occurred. labor shortages, putting upward pressure on wages. As of May 31, 2020, FedEx Ground employed 40,000 full-time and 114,000 permanent employees. This number has increased to 66,000 full-time and 134,000 permanent workers as of May 31, 2022 or a 65% increase in full-time workers and an 18% increase in part-time workers. Given the wage pressures reported by the Atlanta Fed, wages as a % of income may be higher.
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At Purchase Transportation, we will understand that FedEx Ground conducts its delivery operations through more than 100,000 vehicles owned and operated by “independent contractors.” Although FedEx has developed delivery services (services, fuel, car repairs, etc.), the same cost pressure that affects the business from within will appear in this line item. It is a surprising transport as the % of revenue decreased from 47.5% in FY2020 to 45.8% in FY2022, which means the profit of FedEx contractors has really decreased during the COVID-19.
In fact, contractors appear to be bracing for their reduced profits, as evidenced by recent news reports. Will FedEx be able to extract more profits from contractors?
“FedEx Ground should be treated as the employer or co-employer of the drivers of the service providers employed by FedEx Ground.”
The court didn’t think so, as the 9th Circuit Court of Appeals in San Francisco concluded in 2014 that FedEx had mischaracterized FedEx Ground drivers as independent contractors. Interestingly, if we look at FedEx Ground’s purchased transportation expenses as a % of revenue, it took an upward step from below 40% to 44% in 2016, immediately The company decided to settle a wrongful-death lawsuit in California. Perhaps FedEx Ground’s extraordinary profits earlier in the decade were simply because the company was not compensating drivers well enough?
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Looking forward, it looks like management has a lot of work to do to achieve the 11-12% operating margin announced in the Ground business. Rising wage pressures, which can keep salaries as a % of revenue. Also, cost pressures on independent contractors may force the line item to increase as a % of revenue.
If management can grow revenue to $105 billion to $110 billion by FY2025 and improve operating margins to 10%, a discounted cash flow (“DCF”) analysis indicates the market share could be worth $400, or 70%+ higher (Figure 13).
However, given the challenges mentioned above regarding the Express and Ground sectors, how much service is the actual market price? At the current share price of $233, it appears that the market offers a price with a margin of activity between 5 to 6%, a little less than the 6.4% average margin of activity mentioned at the beginning of the article.
The high risk to FedEx is clear if the energy and wage growth slows down, in the context of management with a simple task to achieve the goal of 10% FY2025 work. However, given the Western restrictions on Russian energy exports, the only logical way for energy prices to decrease would be if the global economy entered a recession.
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This becomes low risk, as FedEx’s business is flexible and sensitive to general business volumes. In fact, FY2019 (which includes the 2018 Fed tightening and the Global slowdown) saw operating margins fall 1.0% YoY
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