One of the largest package delivery companies, FedEx Corp. (FDX) has raised its quarterly dividend by a penny per share to 15 cents. The increased dividend is payable on Jul 1 to stockholders of record on Jun 17. We believe that the company’s focus on increasing investor return is backed by its strong financial strength from operational efficiency.
In an effort to lower cost, the company is concentrating on network realignment to match the current demand level. In Jun 2012, the company announced plans to purchase 19 more Boeing 767 aircraft. FedEx expects the delivery of these aircraft from 2015 through 2019.
These new aircraft are expected to benefit cost structure by replacing the old fleet of MD-10 and A31-200 as well as by exchanging equipments like spare part, tooling and flight simulators with the existing FedEx Boeing 757 Fleet. Additionally, FedEx delayed the delivery of eleven 777-freighter aircraft that were scheduled to be delivered between 2013 through 2018.
We believe the delayed deliveries would help in better utilization of the MD-11 fleet on international flights and lower overall cost and investment. Going forward, FedEx would buy 30 Boeing 757 passenger airplanes from United Continental Holdings Inc. with deliveries between the latter half of 2013 through 2015.
The company aims to convert these narrow-body jets into its freighters fleet and utilize them for cargo delivery. These twin-engine based airliners are not only fuel efficient but are also capable of transporting 20% extra freight than the three-engine Boeing 727s that would be replaced. However, this conversion process is expected to take around three months at a cost of nearly $5 million per plane.
Further, the company also announced the retirement of 86 aircraft and 308 related engines to improve the network efficiency at FedEx Express. The company expects the complete retirement of The Boeing Company (BA) B727-200 fleet. The company expects to incur around $100 million in impairment charges this year and a depreciation expense of $74 million in FY14.
We believe the investments in organic growth as well as acquisitions will lead to greater operational efficiencies, generating significant long-term synergies, supporting international business growth and driving higher profitability. These will also provide a competitive advantage over peers like United Parcel Service, Inc. (UPS) and Expeditors International of Washington Inc. (EXPD).
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