(FDX) FedEx Builds New Delivery Center

FedEx Corp. (FDX) has announced the construction of a ground distribution facility in Southwestern Illinois. The company expects the $23.5 million facility to serve 10,000-packages per hour upon its completion. We expect the new facility to add to FedEx’s already established infrastructure, thereby strengthening its service capabilities.

The new facility is expected to generate 25 full time jobs along with 150 part-time jobs in the state of Illinois. The company already has 16 operational facilitates in the state that cater to package delivery services in the area and work in tandem to support the economy of the state.

FedEx’ other improvement plans include productivity enhancements in the Ground segment like automation of planning and execution of free load and pickup and delivery processes. The segment’s trailers are also expected to be equipped with GPS devices to improve fleet management.

We believe near-term earnings growth will be aided by increasing profitability in Freight coupled with continued growth in the Ground segment. Additionally, improving international revenues and operational efficiency in FedEx Express will also support earnings going forward.

FedEx is boosting its international business through substantial investments to enhance its existing routes and make strategic acquisitions. The company is building a new hub in Guangzhou, China, to cater to 100 new Chinese cities within the next five years.  Recently, the company announced that it will invest $100 million in China in order to strengthen its position in the country against its rival – United Parcel Service, Inc. (UPS)

As for acquisitions, in 2012, the company took over Polish courier company Opek Sp. z o.o. as well as French B2B Express transportation company, TATEX. Soon after, the company acquired Rapidão Cometa, a Brazilian transportation and logistics company. We believe the investments in organic growth as well as acquisitions will lead to greater operational efficiencies, providing a competitive edge, generating significant long-term synergies, supporting international business growth, and driving higher profitability. The company targets 46% of its capital expenditure budget of $3.6 billion for fiscal 2013 (lower than the previous estimate of $3.9%) to be directed toward growth initiatives and 54% to be dedicated to the existing operations.

FedEx, which operates with the likes of Air Transport Services Group, Inc. (ATSG) and Radiant Logistics, Inc. (RLGT) retains a Zacks Rank #3 (Hold).

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