FedEx Moves to Cut Costs, Posts Higher Profit - WSJ.com
CREDITED SOURCE: Wall Street Journal Online
FedEx Corp. is implementing more cost-cutting measures, citing the second-quarter shipping decline and expectations the economy will remain difficult next year.
"Our financial performance is increasingly being challenged by some of the worst economic conditions in the company's 35-year operating history," Chief Executive Frederick Smith said in the company's release, which also included quarterly results.
The measures include base-salary decreases effective Jan. 1. Mr. Smith's salary will be lowered by 20%, while other senior executives will see cuts of 7.5% to 10%. The package shipper is also eliminating bonuses and suspending company matching for its 401(k) plan.
FedEx, often considered a bellwether for the U.S. economy because of its massive shipping volume, said it has already cut about $1 billion in expenses for fiscal 2009 by cutting jobs at FedEx Freight and FedEx Office, eliminating variable compensation, starting a hiring freeze and cutting back work hours.
For its fiscal second quarter ended Nov. 30, FedEx reported net income of $493 million, or $1.58 a share, up from $479 million, or $1.54 a share, a year earlier. The result matched the company's projection issued earlier this month, at which time it said lower fuel costs would bolster its bottom line.
Revenue increased 1% to $9.54 billion. Analysts surveyed by Thomson Reuters expected revenue of $9.88 billion.
As oil and diesel-fuel prices recede, trucking and shipping companies are now faced with concerns about volume, which has struggled during the economic downturn as companies slow orders and sales across a broad range of industries.
Daily volume in FedEx's express and ground segments fell 2% as the weak economy reduced demand for shipping services. Both segments posted increases in operating margins, with express edging up to 8.9% from 8.8% and ground rising to 11.9% from 10.2%. U.S. domestic express package volume slid 8%, although revenue per package increased 9% on higher fuel surcharges.
Last month, FedEx said it would raise standard rates for ground and home delivery services by an average of 5.9% starting Jan. 5, matching rival United Parcel Service Inc. FedEx announced in September that air-service rates would increase 6.9%, but the actual increase will be two percentage points less as fuel surcharges get reduced. UPs' air increase is also 4.9%.
Looking ahead, FedEx projected earnings for the second half of fiscal 2009 of 69 cents to $1.94 a share. It said it won't provide third-quarter guidance due to the economic uncertainty. Analysts were looking for third-quarter earnings of 54 cents a share. The company affirmed a full-year estimate of $3.50 to $4.75 a share.
In a sign of how bad the times are getting, FedEx, usually a loyal Super Bowl advertiser, is still undecided about whether it would buy ad time, and was hoping to wait for a bargain. A person close to the company said FedEx was concerned that shelling out big bucks -- Super Bowl ads can run up to $3 million for a 30-second spot -- at a time when it is asking employees to do more with less would look "wrong."
CREDITED SOURCE: Wall Street Journal Online
FedEx Corp. is implementing more cost-cutting measures, citing the second-quarter shipping decline and expectations the economy will remain difficult next year.
"Our financial performance is increasingly being challenged by some of the worst economic conditions in the company's 35-year operating history," Chief Executive Frederick Smith said in the company's release, which also included quarterly results.
The measures include base-salary decreases effective Jan. 1. Mr. Smith's salary will be lowered by 20%, while other senior executives will see cuts of 7.5% to 10%. The package shipper is also eliminating bonuses and suspending company matching for its 401(k) plan.
FedEx, often considered a bellwether for the U.S. economy because of its massive shipping volume, said it has already cut about $1 billion in expenses for fiscal 2009 by cutting jobs at FedEx Freight and FedEx Office, eliminating variable compensation, starting a hiring freeze and cutting back work hours.
For its fiscal second quarter ended Nov. 30, FedEx reported net income of $493 million, or $1.58 a share, up from $479 million, or $1.54 a share, a year earlier. The result matched the company's projection issued earlier this month, at which time it said lower fuel costs would bolster its bottom line.
Revenue increased 1% to $9.54 billion. Analysts surveyed by Thomson Reuters expected revenue of $9.88 billion.
As oil and diesel-fuel prices recede, trucking and shipping companies are now faced with concerns about volume, which has struggled during the economic downturn as companies slow orders and sales across a broad range of industries.
Daily volume in FedEx's express and ground segments fell 2% as the weak economy reduced demand for shipping services. Both segments posted increases in operating margins, with express edging up to 8.9% from 8.8% and ground rising to 11.9% from 10.2%. U.S. domestic express package volume slid 8%, although revenue per package increased 9% on higher fuel surcharges.
Last month, FedEx said it would raise standard rates for ground and home delivery services by an average of 5.9% starting Jan. 5, matching rival United Parcel Service Inc. FedEx announced in September that air-service rates would increase 6.9%, but the actual increase will be two percentage points less as fuel surcharges get reduced. UPs' air increase is also 4.9%.
Looking ahead, FedEx projected earnings for the second half of fiscal 2009 of 69 cents to $1.94 a share. It said it won't provide third-quarter guidance due to the economic uncertainty. Analysts were looking for third-quarter earnings of 54 cents a share. The company affirmed a full-year estimate of $3.50 to $4.75 a share.
In a sign of how bad the times are getting, FedEx, usually a loyal Super Bowl advertiser, is still undecided about whether it would buy ad time, and was hoping to wait for a bargain. A person close to the company said FedEx was concerned that shelling out big bucks -- Super Bowl ads can run up to $3 million for a 30-second spot -- at a time when it is asking employees to do more with less would look "wrong."