FedEx to make further cuts to boost profits by $1.7bn
FedEx Corp is planning more cost-cutting as it attempts to prop up stalling profits and keep investors happy with larger dividend payments. The Memphis-based integrator is holding an investors’ summit today where it is to reveal further cutbacks to be carried out, above and beyond measures announced earlier this year.
The company is promising a $1.7bn improvement in its annual profits by fiscal year 2016.
The world’s largest express operator has been suffering from the tough global economy this year, with clients shifting away from premium express delivery services, towards economy options, with more freight switching from air travel to ground and ocean-going alternatives.
FedEx began restructuring its air fleet this summer with a view to more shipments being sent by economy deferred services.
In August the company said it was planning to offer voluntary buyouts to cut the size of its workforce at its express division, FedEx Express, and its administrative wing, FedEx Services.
Last month the company downgraded forecasts for this year’s share earnings by 70 cents per share.
“On track”
Yesterday afternoon chief executive and founder Frederick W Smith said he believed the extra cost-cutting would put the company “on track”, along with the strength of FedEx Ground, the US domestic ground division that has been significantly boosted by the surging popularity of online shopping.
“The key is striking the right balance between volume growth and yield improvements,” Smith said. “With slow economic growth, however, the cost reduction programmes we will describe tomorrow are also essential to achieve our financial goals.”
Smith added: “We are confident we will deliver the performance to ensure the near- and long-term success of FedEx. And, we believe we can do this even in the low-growth environments for global trade and within the major economies.”
FedEx Corp is set to become the smallest of the world’s three surviving major shipping integrators next year if US rival UPS is allowed to buy European rival TNT Express.
In the company’s fiscal year 2012, which ended on 31st May, FedEx generated total revenues of $42.7bn, up 9% on the year before. Net income was $2bn for the year, up 40% on the year before.
Earnings per share last year were also up 40% on the year before, to $6.41 per share. This year, even after tempering expectations, FedEx is still predicting its share earnings will be in the $6.20 to $6.60 range per share, assuming fuel prices remain as they are.
Rebholz
Today FedEx also announced that FedEx Ground president and CEO David F Rebholz will retire at the end of May 2013, at the age of 60.
Rebholz has led FedEx Ground since 2007, but began his career at FedEx back in 1976 and joined management in 1978, with 30 years at FedEx Express including a series of senior management positions.
FedEx said a successor will be named in due course.
Smith said: “Dave has done a tremendous job at FedEx Ground. Under his leadership, FedEx Ground has differentiated its industry-leading speed and outstanding service.
“FedEx Ground has grown rapidly and delivered incredible results during the last several years, and is well-positioned to continue that growth in the years ahead.”
