FedEx Stock Presentation

FedEx Corporation

“THE WORLD ON TIME”

NYSE: FDXStock Pitch Competition

Saturday, March 14th, 2015Ashwin Anant: Equity Analyst at Brock Finance & Investment

Group

Stock QuoteData Friday, March 13th,

2015

Current Price $173.32 (6% 52WH)

52 Week High $183.51

52 Week Low $130.64

TTM P/E 22.90x

Market Cap $49 Billion

Dividend Yield 0.45%

Outstanding Shares 283.31 M

LTM EPS $7.93

Beta 1.15

CEO: Frederick W. Smith• Founded company in 1971• Served as board of governors of many

public companies• Recipient of Global Leadership Award

Executive VP & CFO: Alan B. Graf, Jr.• Joined the company as a financial analyst

in 1980• Served as executive VP and CFO of

FedEx Express until 1998

T, Michael Glenn: Executive VP, Market Development and Corporate Communications• Joined FedEx in 1981• Serves president and Co-CEO of FedEx

Corporate services and is on the Executive Committee

Overview Industry Analysis Valuation Appendix

Management

Headquarters: Memphis, TennesseeRecommendation: HoldTarget Price: $178.46Target Entry Point: $152.53

Company OverviewMarket leader in international express transportation and

delivery; First founded in 1971 as an express transportation company (FedEx Express)

Evolved into a large-cap holding company which owns and operates four business segments; FedEx Express, FedEx

Ground, FedEx Freight, FedEx Services

Incorporated in 1998 in Delaware as FedEx Corporation; FedEx Trade Networks has expanded to 13 new countries in Europe,

Africa, Asia and Latin America

Provides logistics services, package delivery and supply chain management to over 220 countries in the world that make up

90% of the world’s GDP


Core Business/Operating Segments


Employs 55000 vehicles including 650 aircraftProvides door-to-door delivery service, time-definite delivery Offers temperature controlled delivery, overnight delivery & urgent delivery

Operates 42000 vehicles owned by third-parties, and 44,000 company owned trailersTransitioned to the ISP business model to lower liability, add new routesFedEx Smartpost delivers low-weight, cost efficient packages using USPSServes 100% of all US residential locations and businesses, offers money-back guarantees

Owns 62,000 vehicles Provides the fastest LTL service in the North American marketImproves cost and time efficiency through FedEx electronic solutions

Provides sales, marketing, IT solutions, and administrative servicesOffers FedEx Mobile and FedEx Office apps allow users to track their product shipping statusPack Plus provides customized packaging and shipping

Macro-economic Catalysts• Globalization

• Slow growth in emerging markets still outpaces developed nations

• E-commerce• E-commerce sales made up 6.5% of total retail

sales in 2014, up from 5.8% in 2013• E-commerce sales increased by 15.4% in 2014

• Technology & Real-time Data• Website & mobile app enables shipping tracking

in real time data & customization of shipping needs

• Innovation in Inventory Management• Just-in-time purchasing has improved time and

cost efficiency in supply chain management


Source: U.S. Department of Commerce- US Census Bureau News

World Bank: GDP Growth (%)

2010 2011 2012 2013

United States 2.5 1.6 2.3 2.2

Canada 3.4 2.5 1.7 2.0

China 10.4 9.3 7.7 7.7

India 10.3 6.6 4.7 5.0

Source: World Bank

http://data.worldbank.org/country/united-states

http://data.worldbank.org/country/canada

http://data.worldbank.org/country/china

http://data.worldbank.org/country/india

StrengthsStrong brand and global presenceExperienced Management teamEmphasis on customer loyalty initiatives; e.g., 15% discount for customers with FedEx online accountTrack record of quality, timely service

WeaknessesSeasonality of business performanceFedEx lags behind UPS in terms of size and market share Reliance on US market and domestic demand

OpportunitiesSeven year deal with US Postal Service to boost revenue growthCrude Oil Prices have slashed by 50%Sponsorship of PGA Golf and NFL sporting events Inflation will help boost consumer spending Acquisitions

ThreatsStrong US Dollar could negatively impact profitsSubject to posting regulations and customs restrictions when shipping internationallyShift in demand from Priority shipping to cheaper Economy shippingLow fuel prices could result in lower offsetting fuel surchargesIndirect competition (Amazon Prime Air)

Situational Analysis


Qualitative Comparison: FEDEX VS UPS

• Segregation of business operations allows each business segment to be managed independently which improves operating efficiency

• Handles an average of 9 Million packages per day

• Strong balance sheet with lower leverage

• Potential for dividend increases & CAPEX with strong operating cash flow

• Operates 650 aircraft fleet

• Integrates all types of delivery service within one network as opposed to separate segments

• Handles an average of 16 Million packages per day

• Their 2.68% dividend may not be sustainable with their current debt levels at over 292% of operating cash flow

• Operates 531 aircraft fleet • Less foreign exposure (25% international

revenues, compared to 30% for FedEx)


Valuation: Discounted Cash Flow


Projection Period2015 E 2016 E 2017 E 2018 E 2019 E

Sales 47,389 49,284 51,254 53,048 54,905 % growth 4.00% 4.00% 4.00% 3.50% 3.50%Less: Cost of Revenue 13,070 13,593 14,137 14,631 15,143Gross Profit 34,318 35,690 37,117 38,417 39,761% Margin 72.42% 72.42% 72.42% 72.42% 72.42%Less: Operating Expenses 28,044 29,165 30,332 31,393 32,492 EBITDA 6,274 6,525 6,786 7,023 7,269% Margin 13.24% 13.24% 13.24% 13.24% 13.24%

Depreciation & Amortization 2,690 2,809 2,921 3,024 3,130EBIT 3,584 3,716 3,864 4,000 4,140 % margin 7.56% 7.54% 7.54% 7.54% 7.54%Taxes 1,326 1,375 1,430 1,480 1,532Earnings before interest after taxes 2,258 2,341 2,435 2,520 2,608

Plus: Depreciation & Amortization 2,690 2,809 2,921 3,024 3,130Plus: Other Non-cash Expenses 861 896 931 964 998

Less: Capital Expenditures 3,933 4,091 4,254 4,403 4,557Less: Change in NWC 250 -49 -50 -46 -48

Unlevered Free Cash Flow 2,126 1,907 1,983 2,059 2,131 WACC Discount Period 1.0 2.0 3.0 4.0 5.0 Discount Factor 0.93 0.86 0.80 0.74 0.69 Present Value of Free Cash Flow 1,975 1,645 1,589 1,532 1,473


Debt 4,735 Cost of Equity (CAPM):

Equity 15,563Risk Free Rate (Avg Daily Yield for 2014 5-year T-bills) 1.64%Levered Beta 1.15

Debt-to-Cap 23.33% Risk Premium 6%Equity-to-Cap 76.67% Size Premium 1.20%

D/E 30.42% Cost of Equity 9.77%

Cost of Debt 2.01% WACC 7.66%Tax Rate 36.60%After-tax cost of Debt 0.73%

Cumulative Present Value of FCF 8,214.23 Enterprise Value

$53,447.5

Less: Total Debt 4,735.00Terminal Value Less: Preferred Securities 0.00Terminal Year EBITDA (2018E) 7,269.28 Less: Noncontrolling Interest 0.00

Exit Multiple

9.0xPlus: Cash and Cash Equivalents 2,266.0

Terminal Value 65,423.54

Discount Factor 0.69 Implied Equity Value $50,978.5

Present Value of Terminal Value 45,233.23

% of Enterprise Value 84.6% Implied Diluted Shares Outstanding 283.31

Enterprise Value 53,447.46 Implied Share Price $179.94

Comparable Companies Data (Data Current as of Feb 26, 2015)


Category Metric FedEx UPS TNT Express Deutsche Post AG

Industry Average

Performance Metrics

ROE 14.10% 80.80% -8.50% 24.90% 27.83%ROA 7.00% 10.20% -4.60% 6.40% 4.75%

Dividend Yield 0.50% 2.60% 1.10% 2.65% 1.71%Return on Inv. Cap. 9% 23.30% -6.60% Nil 8.57%

Leverage

Debt to Equity 30.42% 168.50% 9.90% 60.30% 67.28%

Cash flow to Debt 45.43% 34.21% N/A N/A

Debt/Total Assets 14.35% 34.12% 5.1% 16.7% 17.57%

Valuation

NTM P/E 17.98 19.71 17.5 17.69 18.22P/B 3.22 16.45 1.37 4.34 6.35

P/Free Cash Flow 48.3 20.8 Nil 31.1 33.40

EV/EBITDA 8.22 14.7 Nil 9.1 10.67

LiquidityCurrent Ratio 1.78 1.9 1.3 1.0 1.50Quick Ratio 1.69 1.6 1.0 0.8 1.27A/R Turnover 8.5 10 6.8 7.7 8.25

• FedEx is undervalued by most metrics relative to its major rivals in the logistics industry• FedEx compares favourably to its peers in terms of liquidity and relatively low leverage ratios


Industry Average Price/Free Cash Flow 33.40

Free Cash Flow/Share 2.38

Price Target $79.49

Industry Average EV/EBITDA 10.672015E EBITDA(based on projected revenue growth of 4.75%)

7,269Enterprise Value 77,587Less: Total Debt 4,735.00Less: Preferred Securities 0Less: Noncontrolling Interest 0Plus: Cash and Cash Equivalents 2,266.00Implied Equity Value 75,118 Implied Diluted Shares Outstanding 283.31 Implied Share Price 265.15

Industry Average NTM P/E 18.22

NTM Consensus Target EPS 9.9

Price Target 180.38

UPSIDE: 2.97% (As of March 13th, 2015: Price = $173.32)RECOMMENDATION: HOLD

70%Price Target:

$178.46

DCF Price Target: $179.94

EV/EBITDA Price Target: $265.15

P/E Price Target: $180.38

P/Free Cash Flow Price Target: $79.49

Weightage Upside

70% 3.90%

10% 53.10%

10% 4.15%

10% -54.10%


Forward looking Strategies• Meet their $8.00-$9.50 EPS target for the year ended May 31, 2015

• Direct their CAPEX spending towards aircraft modernization, fuel-efficient vehicles, acquisitions

• Use technology to speed up package sorting and delivery processes

• Price parcels on a dimensional-weight basis

• Cater to vertical industries such as automobile and healthcare

• Continue to leverage their brand presence and user-friendly services to retain customer loyalty


FedEx has beat the S&P 500 by 17% points over the last yearHold & Buy after 17% correction in stock priceTarget Entry Point = $178.46/1.17= $152.53


Source: http://www.barchart.com/chart.php?sym=FDX&t=BAR&size=M&v=1&g=1&p=D&d=X&qb=1&style=technical&template=

Thank You

Financial Performance2012 2013 2014 Q2 2015 (YTD)

Total Revenue 42,680 44,287 45,567 23,623 Operating Expenses 39,494 41,736 42,121 21,623 Operating Income 3,186 2,551 3,446 2,000 Other Income -45 -96 -157 -92Income before Tax 3,141 2,455 3,289 1,908 Income Tax 1,109 894 1,192 686 Net Income $ 2,032 $ 1,561 $ 2,097 $ 1,222 Diluted EPS $ 6.41 $ 4.91 $ 6.75 $ 4.24 Weighted Average Common Shares 315 315 307 284


Sensitivity AnalysisWACC

Price Target79.9 5.66% 6.66% 7.66% 8.66% 9.66%7.0 158.28 151.18 144.46 138.10 132.068.0 177.76 169.77 162.20 155.03 148.24

EV/EBITDA 9.0 197.25 188.35 179.94 171.97 164.42

10.0 216.73 206.94 197.68 188.91 180.60

11.0 236.21 225.53 215.42 205.85 196.78

Source: FedEx 2014 10k Annual Report, Pg. 30

59%25%

13% 3%

Revenue BreakdownFedEx Express

FedEx Ground

FedEx Freight

FedEx Services


SELECTED STATISTICS 2012 2013 2014 Q2 YTD 2015

Operating Margin 7.5% 5.8% 7.6% 8.5% Pretax Margin 7.4% 5.5% 7.2% 8.1%

Return on Assets3 7.1% 4.9% 6.3% 7.0% Return on Equity3 13.6% 9.7% 12.8% 14.1%

Dividends Paid Per Common Share $ 0.52 $ 0.56 $ 0.60 $ 0.40

–

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

Performance Metrics

%

Return on Equity

Operating Margin

Year

Return on Assets


20102011

20122013

20142015E

0200040006000 CAPEXCAPEX Spending

CA

PEX

($M

)

FY Ended 2010

2011 2012 2013 2014


2012 2013 2014 –

$ 5,000 $ 10,000 $ 15,000 $ 20,000 $ 25,000 $ 30,000 $ 26,515 $ 27,171 $ 27,121

$ 9,573 $ 10,578 $ 11,617 $ 5,282 $ 5,401 $ 5,757

$ 1,671 $ 1,580 $ 1,536

FedEx Express FedEx Ground FedEx Freight FedEx Services

2012-2014 Revenues by Seg-ment

Rev

enue

($M

) ($

M)

20102011

20122013

20142015E

0

2000

4000

6000

8000 EBITDA

FY Ended

EBIT

DA ($

M)

EBITDA

2010 2011 2012 2013 20140

100020003000400050006000

Cash

Debt As at Year End

$M


FedEx ExpressAnnual Shipment Statistics

FY 2012 – FY 2015

FY 2012 FY 2013 FY 2014Q2 YTD

FY15AVG DAILY VOLUME / POUNDSAverage Daily Package Volume (000s):

U.S. Overnight Box 1,146 1,134 1,164 1,235U.S. Overnight Envelope 586 574 538 524 Total U.S. Overnight 1,732 1,708 1,702 1,759U.S. Deferred 845 835 869 880 Total U.S. Packages 2,577 2,543 2,571 2,639International Priority 421 421 410 417International Economy 138 155 170 175 Total International Export Packages 559 576 580 592International Domestic1 495 785 819 866 Total Avg Daily Packages 3,631 3,904 3,970 4,097

Average Daily Freight Pounds (000s):

U.S. 7,487 7,612 7,854 7,676International Priority 3,303 3,048 2,922 2,887International Airfreight 1,171 1,066 798 650 Total Avg Daily Freight Pounds 11,961 11,726 11,574 11,213


FY 2012 FY 2013 FY 2014Q2 YTD

FY15FedEx Ground

Total Package Volume (000s) 1,000,099 1,076,709

1,165,217

598,076

Average Daily Package Volume (000s) 3,907 4,222 4,588 4,709

9Yield (Revenue Per Package) $ 8.77 $ 8.94 $ 9.10 $ 9.25

Average Daily YOY Volume Growth Rate 4.3% 8.1% 8.7% 5.4%

FedEx SmartPostTotal Package Volume (000s) 433,042 522,726

550,745

253,955

Average Daily Package Volume (000s) 1,692 2,058 2,186 2,000

Yield (Revenue Per Package) $ 1.81 $ 1.77 $ 1.78 $ 1.87

Average Daily YOY Volume Growth Rate 18.2% 21.6% 6.2% (7.2%)

FedEx FreightAnnual LTL Shipment Statistics

FY 2012 – FY 2015FY 2012 FY 2013 FY 2014 Q2 YTD FY15

Shipments Per DayPriority 60,345 59,280 62,868 69,526Economy 24,511 26,370 27,687 29,230 Total shipments per day 84,856 85,650 90,555 98,756

Weight Per LTL Shipment (lbs)Priority 1,202 1,237 1,262 1,251Economy 1,045 990 1,000 1,012 Composite Weight per LTL Shipment 1,156 1,161 1,182 1,180

• Analyst Coverage• ACCOUNTABILITY• ARGUS RESEARCH• B OF A M L• BAIRD R W• BARCLAYS CAPITA• BB & T CAPITAL• DEUTSCHE BK SEC• EDWARD JONES• MACQUARIE CAPIT• MORGAN STANLEY• OPPENHEIMER HLD• RAYMOND JAMES• STIFEL NICOLAUS• UBS• WILLIAM BLAIR

Average Consensus Price Target: $192.5012 Analysts Rated “Strong Buy”7 Analysts Rated “Hold”


FedEx Stock Presentation

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