FEDEX CORPORATION CREDIT ANALYSIS

by,
Shannon Cobb
Professor: Glenn Stevens
12/11/2016
Introduction
The purpose of this paper is to analyze the creditworthiness of FedEx Corporation. This paper

first examines the 5Cs of FedEx using the companys financial statements over the past 3 years.

A credit analysis is conducted to determine if the company is capable to pay back its principal

payments to the bank or other creditors. Next the strengths and weaknesses of the credit analysis

are examined. And finally, a summary of the key findings is discussed.

Character
FedEx operation began in 1973. Since then the company has grown tremendously. The company

serves more than 220 countries and territories and continues to offer new products and services

around the globe. The company has 50.4 billion in revenue in fiscal year 2016. FedEx has over

400,000 employees. The FedEx portfolio bundle has significant value, 96% of U.S. revenue

comes from customers of two or more operating companies. (FedEx,2016)

FedEx is one of the worlds most recognized brands. The company is one of the most trusted and

respected companies in the world. The companies name alone is its most powerful sales and

marketing tool. The company has been ranked 8th in Fortune magazines World Most Admired

Companies. FedEx has also raked in the top 50 on the Reputation Institutes 2016 Most

Reputable Companies in the U.S. list, which measures the corporate reputations of the largest

U.S. companies based on consumers trust, esteem, admiration and good feeling towards a

company. In 2016 the company was again listed on Corporate Responsibility Magazines 100

Best Corporate Citizens list. FedEx is recognized as a leader in the transportation industry, for

technological innovation, as well as for global citizenship. (FedEx 10-K, 2016).

As of March 15, 2016 the company was assigned a senior unsecured debt credit rating of Baa2

and commercial paper rating of A-2 and a ratings outlook of stable by Moodys Investor

Service. (FedEx 10-k, 2016)

Capacity & Capital

Table 1
FedEx 2014 2015 2016
Net Income $2.3B $1.05B $1.82B
Cash Flow from Operations $4.26B $5.37B $5.71B
Cash Flow from Investments ($3.55B) ($5.35B) ($9.45B)
Cash Flow from Financing ($2.72B) $1.35B $3.6B
Cash & Cash Equivalents $2.9B $3.76B $3.5B
Debt $4.74B $7.25B $133B

Figure 1.1
Year 2014 2015 2016
Principal Payments $41M $5M $25.4M
Interest Payments $43M $37M $29M
Other Cash Obligations and Commitments $272M $227M $187M
Total Cash Obligations and Commitments $356M $269M $241.4M

FedExs net income decreased by 54.35% from 2014 at $2.3B to $1.05B in 2016. Net income for

the company increase by 73% from 2015 to 2016 to $1.82B. (FedEx 10-K, 2016).

At the end of fiscal year 2014 FedEx had $2.9B of cash and cash equivalents and $4.74B in total

debt. At the end of fiscal year 2015 the company had $3.76B in cash and cash equivalents with a

total debt of $7.25B. The company now has $3.5B in cash and cash equivalents and over $13B in

total debt. (Market Watch, 2016). FedEx started a share repurchase program late in 2013. The
 company has returned $8.8 billion to shareholders since fiscal 2014 by buying back more than 57

million shares of stock. (Levine, 2016).

Figure 1.1 shows FedExs total cash obligations and commitments over the past three years. The

company has continuously had enough cash and short term investments to cover its principal

debt payments.

Figure 1.2 below shows FedExs payments due by fiscal year. The company has future

contractual payments under its operating leases totaling $17.8 billion.

Figure 1.2
Payments Due by Fiscal Year (Undiscounted)
(in millions)
2017 2018 2019 2020 2021 Thereafter Total
Operating activities:
Operating leases $ 2,475 $ 2,243 $ 1,953 $ 1,668 $ 1,451 $ 8,023 $ 17,813
Non-capital purchase obligations and other 577 396 260 192 119 100 1,644
Interest on long-term debt 491 497 496 434 422 8,233 10,573
Contributions to our U.S. Pension Plans 615 615
Investing activities:
Aircraft and aircraft-related capital commitments 1,212 1,770 1,563 1,620 1,476 4,240 11,881
Other capital purchase obligations 44 5 4 1 1 8 63
Financing activities:
Debt 3 3 1,311 961 11,577 13,855
Total $ 5,417 $ 4,914 $ 5,587 $ 4,876 $ 3,469 $ 32,181 $ 56,444

Collateral

FedEx 2014 2015 2016

Current Assets $9.68B $10.94B $11.99B
Current Liabilities $5.31B $5.96 $8.01
 FedEx 2014 2015 2016
Current Ratio 1.82 1.84 1.5
Quick Ratio 1.58 1.59 1.35

The company had current assets of $9.68B, $10.94B and $11.99B in 2014, 2015 and 2016

respectively. The companys current liabilities were $5.31B, $5,96B and $8.01B in 2014, 2015

and 2106 respectively. (Market Watch, 2016). Working capital for FedEx was positive for the

past three years with $4.37B in 2014, $4.98B in 2015 and $3.98B in 2016.

For years 2014, 2015 and 2016 FedEx had a current ratio of 1.82, 1.84 and 1.5 respectively. The

company has more current assets than liabilities. FedEx experienced a 1.1% increase from 2014

to 2015 and a 18.5% decrease from 2015 to 2016.

FedEx had a quick ratio of 1.58 in 2014, 1.59 in 2015 and 1.35 in 2016. (Mergent Inc.,2016).

The companys quick ratio increased by .6% from 2014 to 2015 and decreased by 18% from

2015 to 2016. The companys quick ratio for 2016 shows that the company has $1.35 of liquid

assets available to cover each $1 of current liabilities. FedEx is able to meet short term

obligations and turn its assets into cash efficiently.

Conditions

The transportation industry is highly cyclical and especially vulnerable to trends in economic

activity. FedExs primary business is to transport goods, so the business levels are directly tied to

the purchase and production of goods, which are key macro-economic measurements. When

individuals and companies purchase and produce fewer goods, the company transport fewer

goods, and as companies expand the number of distribution centers and move manufacturing
closer to consumer markets, the company transport goods shorter distances. In addition, FedEx

has a relatively high fixed-cost structure, which is difficult to quickly adjust to match shifting

volume levels. Furthermore, as the company continues to grow its international business, its

increasingly affected by the health of the global economy, the rate of growth of global trade and

the typically more volatile economies of emerging markets. Most recently, the United

Kingdoms vote to leave the European Union could result in economic uncertainty and

instability, resulting in fewer goods being transported globally. In 2016, FedEx saw a continued

customer preference for slower, less costly shipping services. (FedEx 10-k, 2016)

Strengthens and Weakness

Summary
References:
Levine, A. (2016, 31 January). FedEx announces a big buyback, but where's the cash? Retrieved
from http://www.fool.com/investing/general/2016/01/31/fedex-announces-a-big-buyback-but-
wheres-the-cash.aspx?source=iedfolrf0000001
Market Watch. (2016). FedEx Corp. Retrieved from.
http://www.marketwatch.com/investing/stock/fdx/financials/balance-sheet
FedEx. (2016). Overview of company. Retrieved from http://investors.fedex.com/company-
overview/overview-of-company/default.aspx
FedEx. (2016). Form 10-K. Retrieved from http://d1lge852tjjqow.cloudfront.net/CIK-
0001048911/0585489f-5de5-4f89-81bd-5b75272f6915.pdf