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MarketScreener Homepage  >  Equities  >  Nyse  >  FedEx Corporation    FDX

FEDEX CORPORATION

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FedEx risks losing $1 billion-plus Post Office contract to UPS

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07/17/2012 | 03:16pm EST
Handlers scan and affix a courier route label onto packages moving down the belt at the Marina Del Rey, California FedEx station

(Reuters) - Package-delivery company FedEx Corp (>> FedEx Corporation) risks losing its business with the U.S. Postal Service, worth more than $1 billion a year, when the beleaguered postal service puts the contract up for bid next year.

(Reuters) - Package-delivery company FedEx Corp (>> FedEx Corporation) risks losing its business with the U.S. Postal Service, worth more than $1 billion a year, when the beleaguered postal service puts the contract up for bid next year.

The postal service alerted FedEx that it will seek bids for the contract after it expires in September 2013, FedEx said in a regulatory filing late on Monday.

That clears the way for larger competitor United Parcel Service (>> United Parcel Service, Inc.) to grab the business - domestic air transportation for first-class, priority and express mail - that FedEx has had since 2000.

FedEx, the No. 2 package delivery company, signed its first contract in 2000 and started providing postal service in April 2001. In 2006, it signed an extension through September 2013.

"By flying some of the fastest growing and most successful postal products, FedEx Express continues to provide the Postal Service and postal customers important services," FedEx spokesman Jess Bunn said on Tuesday. "We look forward to continuing our excellent relationship."

FedEx is the postal service's top contractor, earning an estimated $1.5 billion in revenue in fiscal 2011 from this business, according to Husch Blackwell LLP's postal service contracting practice group.

UPS, the world's largest package delivery company, earned about $100 million in revenue during that period.

"UPS has informed the U.S. Postal Service that it definitely intends to bid on this work," said UPS spokesman Norman Black.

Dahlman Rose analyst Helane Becker said the contract loss would be small compared FedEx's $42.7 billion in revenue, but disruptive.

"We believe the probability of FedEx losing the USPS contract is relatively small, but until we hear confirmation otherwise, the contract renewal will cast an overhang on the stock," she wrote in a note.

"UPS's current contract is dwarfed by FedEx's and would give the company a solid boost to earnings," she said.

Shares of Memphis, Tennessee-based FedEx were down 0.9 percent in midafternoon trading at $91.04 on the New York Stock Exchange and up 9 percent so far this year.

FedEx is focused on cost-cutting to boost profit margins with sluggish economic growth curbing shipping volumes and leading customers to demand lower-priced delivery options.

Chief Executive Fred Smith in June said the company would provide greater detail of its planned Express division restructuring at its October analyst meetings.

"The timing of contract expiration -- a year following FedEx's expected restructuring announcement -- provides FedEx visibility to plan for any potential loss of business and resulting impact to network utilization," Robert W. Baird analysts led by Benjamin Hartford wrote in a note.

FedEx also said it is preparing to remove about 5,000 drop boxes at U.S. Postal Service locations in about 340 metropolitan areas, in line with a separate agreement that expired in June.

(Editing by Leslie Gevirtz)

By Lynn Adler

Stocks treated in this article : FedEx Corporation, United Parcel Service, Inc.
Stocks mentioned in the article
ChangeLast1st jan.
FEDEX CORPORATION 2.17% 156.61 Delayed Quote.-4.58%
UNITED PARCEL SERVICE 2.19% 117.53 Delayed Quote.17.92%
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Financials (USD)
Sales 2020 70 182 M
EBIT 2020 4 223 M
Net income 2020 2 972 M
Debt 2020 16 593 M
Yield 2020 1,71%
P/E ratio 2020 14,1x
P/E ratio 2021 11,8x
EV / Sales2020 0,81x
EV / Sales2021 0,78x
Capitalization 40 165 M
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Mean consensus OUTPERFORM
Number of Analysts 29
Average target price 165,85  $
Last Close Price 156,61  $
Spread / Highest target 27,7%
Spread / Average Target 5,90%
Spread / Lowest Target -23,4%
EPS Revisions
Managers
NameTitle
Frederick Wallace Smith Chairman & Chief Executive Officer
Rajesh Subramaniam President & Chief Operating Officer
Alan B. Graf Chief Financial Officer & Executive Vice President
Robert B. Carter Chief Information Officer
John A. Edwardson Independent Director
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