FDX Ground Facility Tour -notes from Bear Stearns
FDX Ground Facility Tour. On Thursday, we toured FedEx Ground’s 500,000
>square foot Woodbridge, NJ facility, its third largest hub by volume,
>processing over 30,000 packages per hour. In the next eighteen months,
>management estimates that its New Jersey hub will grow to be the largest
>Ground facility by volume, eclipsing its hub in Harrisburg, Pennsylvania.
>* Ground Has Grown Its Volumes And Margins at Considerable Rates Over the
>Past Three Fiscal Years with a volume CAGR and margin improvement of 19.4%
>and 670bp from F01-F03. We anticipate more normalized single digit volume
>growth rates going forward with margins staying relatively stable just
>under 14% going forward. Currently our sense is volume growth is tracking
>close to 10%.
>* Productivity Improvements Drive Margin Upside. Over the last 3 years, a
>combination of technological improvements and productivity gains have taken
>$40 million ($0.08/share) per year in cost out of FedEx Ground’s network,
>and driven consistent margin improvement. This year, expectations are for
>roughly $30 million ($0.06/share) in savings due to technological and
>productivity improvements.
>* Ground Benefiting From Kinko’s. Beginning May 24th, customers will be
>able to ship via FDX Ground at all Kinko’s locations, as Ground delivery
>will soon be possible in the remaining 966 retail locations (out of 1,100)
>that previously only offered Express shipments. Although we expect that
>this will cannibalize some Express sales, we believe Ground will create
>some incremental volumes
>* Home Delivery Profitability Improving As Density Builds. Home Delivery
>is critical to Ground’s goals to increase stop density and increase
>incremental margins. Management noted HD EBIT margins are ahead of
>schedule but not yet at double digit levels vs. B2B moves at estimated
>double digit teen margin levels. FDX recently won an LL Bean HD contract
>which was apparent on our facility tour.
