edEx profit up, but to cut costs as '09 looks bad
Thursday December 18, 9:45 am ET
By Nick Carey
DETROIT (Reuters) - Package delivery giant FedEx Corp (NYSE:FDX - News) reported a higher profit for its fiscal second quarter, meeting expectations, but offered a grim view of the economy in 2009 and said it is taking action to cut costs.
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"Our financial performance is increasingly being challenged by some of the worst economic conditions in the company's 35-year operating history," Chief Executive Fred Smith said in a statement on Thursday.
"With the decline in shipping trends during our second quarter and the expectation that economic conditions will remain very difficult through calendar 2009, we are taking additional actions necessary to help offset weak demand, protect our business and minimize the loss of jobs."
FedEx also gave a broad earnings outlook range for the second half of its fiscal 2009 year and said it would not provide an outlook for the third quarter because of "significant economy uncertainty."
The company said it already has a hiring freeze in place and has been reducing staff levels at its FedEx Freight and FedEx Office units.
FedEx said new measures include a 20 percent base salary decrease for CEO Smith, pay cuts of between 7.5 percent and 10 percent for other senior executives as of Jan 1, while all other U.S. salaried exempt personnel will have a 5 percent pay cut.
The company also announced the suspension of matching contributions to FedEx's 401(k) retirement plan for a minimum of one year as of February 1.
FedEx said the cost-cutting measures would reduce expenses by $800 million by the end of its fiscal 2010 year.
"It's tough, but it's a sign of the times," said Al Meyers, portfolio manager of the AHA Diversified Equity Fund, which owns FedEx shares. "The fact that executives including Fred Smith are taking pay cuts sends a message to employees that 'we're all in the same boat,' which is a positive."
"As long as we have confidence in the management at FedEx and in the overall business model, we'll stick with them," he added.
The Memphis, Tennessee-based company, which like main rival United Parcel Service Inc (NYSE:UPS - News) is considered a bellwether of U.S. economic health, reported net income for its fiscal second quarter, ended November 30, of $493 million, or $1.58 per share.
That compared with the $479 million, or $1.54 per share, the company reported a year earlier.
Wall Street analysts had on average expected earnings per share of $1.58, according to Reuters Estimates.
The company reported revenue for the quarter of $9.54 billion, compared with $9.45 billion a year earlier. Analysts expected $9.78 billion.
FedEx gave a broad profit range of between 69 cents to $1.94 per share for the second half of its fiscal 2009 year and said that apart from economic uncertainty, the recently announced departure of DHL from the United States made it difficult to provide a forecast for the third quarter.
"FedEx has been taking action for sometime to offset the effects of a downturn," said Sandeep Kar, a transportation analyst at consulting company Frost & Sullivan. "They have done the right things to navigate them through these troubled waters."
Deutsche Post AG (XETRA:DPWGN.DE - News) said in November that its DHL express unit would end U.S. domestic service on January 30 with the loss of 9,500 jobs, citing the U.S. slowdown and its uphill struggle to compete against FedEx and UPS on their home turf.
FedEx and UPS have seen package volumes hit by the slowing U.S. economy and have both reported that customers have been migrating to cheaper ground delivery services from pricier express services.
UPS said in November that the current economic environment had made it too difficult to give its usual peak season package volume forecast.
In early trading, FedEx shares were up less than 1 percent at $64.43.
(Editing by Steve Orlofsky)
Thursday December 18, 9:45 am ET
By Nick Carey
DETROIT (Reuters) - Package delivery giant FedEx Corp (NYSE:FDX - News) reported a higher profit for its fiscal second quarter, meeting expectations, but offered a grim view of the economy in 2009 and said it is taking action to cut costs.
ADVERTISEMENT
"Our financial performance is increasingly being challenged by some of the worst economic conditions in the company's 35-year operating history," Chief Executive Fred Smith said in a statement on Thursday.
"With the decline in shipping trends during our second quarter and the expectation that economic conditions will remain very difficult through calendar 2009, we are taking additional actions necessary to help offset weak demand, protect our business and minimize the loss of jobs."
FedEx also gave a broad earnings outlook range for the second half of its fiscal 2009 year and said it would not provide an outlook for the third quarter because of "significant economy uncertainty."
The company said it already has a hiring freeze in place and has been reducing staff levels at its FedEx Freight and FedEx Office units.
FedEx said new measures include a 20 percent base salary decrease for CEO Smith, pay cuts of between 7.5 percent and 10 percent for other senior executives as of Jan 1, while all other U.S. salaried exempt personnel will have a 5 percent pay cut.
The company also announced the suspension of matching contributions to FedEx's 401(k) retirement plan for a minimum of one year as of February 1.
FedEx said the cost-cutting measures would reduce expenses by $800 million by the end of its fiscal 2010 year.
"It's tough, but it's a sign of the times," said Al Meyers, portfolio manager of the AHA Diversified Equity Fund, which owns FedEx shares. "The fact that executives including Fred Smith are taking pay cuts sends a message to employees that 'we're all in the same boat,' which is a positive."
"As long as we have confidence in the management at FedEx and in the overall business model, we'll stick with them," he added.
The Memphis, Tennessee-based company, which like main rival United Parcel Service Inc (NYSE:UPS - News) is considered a bellwether of U.S. economic health, reported net income for its fiscal second quarter, ended November 30, of $493 million, or $1.58 per share.
That compared with the $479 million, or $1.54 per share, the company reported a year earlier.
Wall Street analysts had on average expected earnings per share of $1.58, according to Reuters Estimates.
The company reported revenue for the quarter of $9.54 billion, compared with $9.45 billion a year earlier. Analysts expected $9.78 billion.
FedEx gave a broad profit range of between 69 cents to $1.94 per share for the second half of its fiscal 2009 year and said that apart from economic uncertainty, the recently announced departure of DHL from the United States made it difficult to provide a forecast for the third quarter.
"FedEx has been taking action for sometime to offset the effects of a downturn," said Sandeep Kar, a transportation analyst at consulting company Frost & Sullivan. "They have done the right things to navigate them through these troubled waters."
Deutsche Post AG (XETRA:DPWGN.DE - News) said in November that its DHL express unit would end U.S. domestic service on January 30 with the loss of 9,500 jobs, citing the U.S. slowdown and its uphill struggle to compete against FedEx and UPS on their home turf.
FedEx and UPS have seen package volumes hit by the slowing U.S. economy and have both reported that customers have been migrating to cheaper ground delivery services from pricier express services.
UPS said in November that the current economic environment had made it too difficult to give its usual peak season package volume forecast.
In early trading, FedEx shares were up less than 1 percent at $64.43.
(Editing by Steve Orlofsky)