FDX- Earnings and Cost Control Measures
 

FedEx Corp. Reports Second Quarter Earnings
Thursday December 18, 7:44 am ET
Announces Broad Cost Reduction Actions Due to Weak Economy

MEMPHIS, Tenn.--(BUSINESS WIRE)--FedEx Corp. (NYSE: FDX - News) today reported earnings of $1.58 per diluted share for the second quarter ended November 30, compared to $1.54 per diluted share a year ago.

“Our financial performance is increasingly being challenged by some of the worst economic conditions in the company’s 35-year operating history,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer. “We are managing our costs and taking full advantage of market opportunities, and our team members are delivering every day on our promise to ‘make every customer experience outstanding’. However, 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.”

Cost Reductions

FedEx has already taken actions to reduce over $1 billion of expenses for all of fiscal 2009, including:

* Elimination of variable compensation payouts
* Hiring freeze
* Volume-related reductions in labor hours and line-haul expenses
* Discretionary spending cuts
* Personnel reductions at FedEx Freight and FedEx Office

FedEx is now implementing a number of additional cost reduction initiatives to mitigate the effects of deteriorating business conditions, including:

* Base salary decreases, effective January 1, 2009:
o 20% reduction for FedEx Corp. CEO Frederick W. Smith
o 7.5%-10.0% reduction for other senior FedEx executives
o 5.0% reduction for remaining U.S. salaried exempt personnel
* Elimination of calendar 2009 merit-based salary increases for U.S. salaried exempt personnel
* Suspension of 401(k) company matching contributions for a minimum of one year, effective February 1, 2009

These additional actions are expected to reduce expenses by $200 million during the remainder of fiscal 2009 and approximately $600 million in fiscal 2010. In addition to these actions, each operating company is evaluating other measures should business conditions further deteriorate.

Outlook

FedEx reaffirms last week’s earnings estimate of $3.50 to $4.75 per diluted share for fiscal 2009, which assumes weak global macroeconomic conditions, anticipated volume gains from DHL and stable fuel prices. The company’s earnings estimate for the second half of fiscal 2009 is $0.69 to $1.94 per diluted share. FedEx will not provide third quarter guidance due to significant economic uncertainty and the difficulty in forecasting the impact of recently acquired DHL customers. Capital spending is now expected to be $2.4 billion for fiscal 2009, down from $3.0 billion at the start of the year.

“While the departure of DHL from the U.S. domestic package market presents a rare opportunity, significant uncertainty exists in the global economy,” said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer. “Our latest earnings outlook reflects that uncertainty and incorporates the expected savings from our cost reduction actions.”

Second Quarter Results

FedEx Corp. reported the following consolidated results for the second quarter:

* Revenue of $9.54 billion, up 1% from $9.45 billion the previous year
* Operating income of $784 million, up from $783 million a year ago
* Operating margin of 8.2%, down from 8.3% the previous year
* Net income of $493 million, up 3% from last year’s $479 million

Total combined average daily package volume in the FedEx Express and FedEx Ground segments was down 2% year over year, as the weak economy reduced demand for shipping services.

Operating income was essentially flat, as the company significantly benefited from rapidly declining fuel prices and from the timing lag that exists between when fuel prices change and when indexed fuel surcharges automatically adjust. These benefits and the cost reduction activities were offset by the negative impact of lower shipping volumes resulting from the weak global economy.

FedEx Express Segment

For the second quarter, the FedEx Express segment reported:

* Revenue of $6.10 billion, up 1% from last year’s $6.04 billion
* Operating income of $540 million, up 2% from $531 million a year ago
* Operating margin of 8.9%, up from 8.8% the previous year

Volume and revenue growth were significantly impacted by global economic weakness. Operating income and margin reflect the benefits of rapidly decreasing fuel prices during the quarter and of the timing lag that exists between when fuel prices change and when indexed fuel surcharges automatically adjust. Results also include benefits from cost-containment activities, such as volume-related reductions in flight hours, labor hours and fuel consumption.

FedEx International Priority® (IP) package revenue grew 1% for the quarter, driven by 8% growth in revenue per package due to higher fuel surcharges. IP average daily package volume declined 7%. FedEx International Priority Freight® revenue grew 4%. U.S. domestic express package volume declined 8%, while revenue per package increased 9% due to higher fuel surcharges.

I think the union is being smart with reguards to the 777 at this time....if Fred is taking a paycut i don't think the NDs should get a raise!!! LOL

No 401K ???
 

There goes that $500/year!! Seriously though.....I may be naiive, but it's nice to see leadership partake of this bitter pill as well. Say what you will, but I'd rather take a significant BLG reduction than to see someone take a 100% BLG reduction!! It may be difficult to get by with less, but it's impossible to get by with nothing!!

Let's show some solidarity y'all!! Hopefully the union (i.e. we the pilots) will do what's possible to preserve jobs during these stressful times.

$500/mo or year?

Just heard from Sheree in LA about the 5% paycut she and the other FOAs are taking. Sucks.

A year....fixed it.

We need a stand alone pay rate for the 777! Even if it's a dollar then we can fix it later, but if we lump it in with the WB rates we are done. You are being very short sighted. As young as you are think 20 years from now. The cargo industry is supposed double in 20 years. We are going to be OK, no one is going to get furloughed.

I'll trade Fred checks any day. His pay is about 1/100th of his income. Put the glass of cool-aid down. :cool:

Still nice to see leadership from the front.......put down your glass of pessimism

There's no cut in the 500/yr going into the pilots' 401Ks. That is contractual and protected. But if that applies to the hourly and salaried employees and not just the salaried exempt employees, (the wording of the press release seems a little unclear on the point) there are going to be some very unhappy workers around the property.

They all had an A plan-like, defined benefit retirement program until about 18 months ago, and then it was frozen and replaced with a beefed-up 401K. Now with the company forcasting positive earnings (albeit reduced earnings) for the next year, they are going to suspend the company's contribution? I'd be some PO'ed.

It wasn't a beefed up 401k, beacuse a 401k is a defined contribution, and just another type of defined benefit (or promise to pay, like our A fund) called a cash balance plan. There is not actual cash in the employees name until he/she retires.

Hopenchangestan, USSA. That is brilliant!

so old and yet so clueless!!!!..get a grip!....once again u have no idea what u r talking about..blab on old man!!!

Nice! Smarter people will take care of the Kool-aid drinkers.

I think you are mistaken on this one. I was stuck in the hub one day after the change came down and they had a special on the company "kool aid" channel about it. It sounded EXACTLY like a 401-k and they even noted that when you left the company (retired, quit, or terminated) you took your money with you. They even explained about rolling it over to a new employers plan.

.................

Hey BoyCapt......love your sand and grit ........but have a glass of Cranberry Juice, It'll help with your cycle symptoms.......:D;)

..................... back at you.

i'm yanking his chain!!!!:D
rolling on the floor!

I feel bad for the exempt people, and well the rest of the employees. FedEx has a history of taking away pay incentives and benefits in tough times, but never giving them back when the booms comes. At least they may be smarter to send out "we're canceling BPP payouts" and following it the next day with "We're paying $100 Bajillion to put the FedEx name on a stadium".

And then my manager at the time read the company line that it's all part of marketing and advertising (because you're shipping selection is based on the stadium name).

I would say, given my past experience as a FedEx employee, that they will never see 401k matches come back. The employees who lose 5% will not see a snapback when the economy turns around (but I bet the execs get theirs back). It's not the People company it was even 15 years ago.

A better article:

FedEx quarterly profit adds 3%, but '09 looks rough
Reduces salaries to save on costs; CEO gets a 20% pay cut

By Christopher Hinton, MarketWatch


NEW YORK (MarketWatch) -- FedEx Corp. said Thursday its fiscal second-quarter profit edged up nearly 3%, but challenging times in "the worst economic conditions" of the company's 35-year history spurred pay cuts and a hiring freeze.

For the recent quarter, the Memphis, Tenn., shipping giant said earnings rose to $493 million, or $1.58 a share, from $479 million, or $1.54 a share, in the year-ago period.

Revenue at the world's top overnight-delivery provider rose 1% to $9.54 billion.

Analysts polled by FactSet Research expected earnings of $1.58 a share on sales of $10.1 billion, on average.

After being up for most of the day, shares of FedEx were off 1.7% at last check to $62.92. The stock is off nearly 30% since mid-September when a crunch in the credit markets caused a steep deceleration in commercial and consumer spending.

Competitor UPS shares added a fraction to $52.91.

Helping the quarterly bottom line at FedEx was a steep decline in fuel costs
and the exit of German rival DHL from the U.S. market.

Shares of FedEx and its competitor UPS were climbing after FedEx reported a jump in shipping volumes and set pay cuts for some top executives.
Nonetheless, shipping volumes fell across the board, with overnight box shipments off 7% form a year ago and overnight envelope falling 10%. Total average daily package shipping dropped 7% to $3.3 million pounds.
Total average freight pounds fell 14% to 11.2 million.

"We frankly expect the difficult global economic environment will worsen in the second half of fiscal 2009," said Chief Financial Officer Alan Graf on a post-earnings call with analysts.

"Weak economic conditions in the U.S. have spread to Europe and Asia, and ongoing weak global economic factors are expected to further reduce demand for all of our transportation services," he said. "We don't believe we have reached the bottom of industrial production or consumer spending on a quarter-over-quarter basis at this point."

To cut costs, save cash and minimize job loss, the company instituted a hiring freeze and cut salaries for U.S. salaried exempt personnel by 5% effective Jan. 1. Further, FedEx senior executives will get a 7.5% to 10% reduction while Chief Executive Frederick Smith will receive a 20%.

That would equate to a $286,000 haircut for the CEO as his base salary is about $1.43 million a year, according to a recent proxy statement.
Smith said on the call that pay reductions, along with a freeze in hiring, elimination in bonuses and variable incentive pay, as well as a halt to company contributions for employee 401(k) plans, should save the company $200 million in fiscal 2009 and $600 million in 2010.

Furthermore, the company continues its program to ground older, more expensive aircraft, cutting back on flight and labor hours, and optimizing its route structure for greater efficiency, Smith said.

Along with a reduction in capital spending, FedEx projects it will save $1 billion for this fiscal year.

"The global economic downturn continues and we are in some degree
uncharted territory as uncertainty in the marketplace continues," said Fredrick Smith on a post-earnings call with analysts. "We cannot predict exactly how it will unfold."

FedEx CEO calls on Obama to change tax policy

During the call, CEO Smith said he believed the root cause of the current economic crisis was a tax policy that encouraged growth in the financial sector at the expense of manufacturing.

In the early '80s, the financial sector represented about 15% of U.S. industry profit, but that climbed to 32% after the federal government encouraged borrowing through the deduction of interest, according to Smith.
Meanwhile, the tax on capital spending was significant, he said.

"One of the things that we have advocated very strongly in addition to lowering the overall corporate tax rate is to expense capital, and that is a policy that President-elect Obama and his team could put in place," Smith said.

"I said in my comments we've reduced our capital from $3 billion to $2.4 billion," Smith added. "Well, if we can make capital investments and get the money back in the year they were made, it makes our workforce more productive."

He dismissed economic stimulus plans that encourage consumer spending, saying in tough economic times people will just put it towards reducing their debt.

Of course they sold it that way, but the employee does not have that money right now, like you do with your 401k, its still a defined benefit as opposed to a defined contribution.

Cash Balance Plan

Did you mean Kool-Aid?
Kool-Aid - Wikipedia, the free encyclopedia

On the plus side, it probably means you never actually drank it.

But, Kool-Aid, is THE copyrighted name . . like Kleenex & FedEx

Did you guys read the message from Fred on the pilot's home page. I thought it was really well done and made no mention of any pilot furloughs. However, I'm sure that MM will see doom and gloom in this message, but that's because he's a glass-half-empty kind of guy.

JJ

FedEx Makes a Smarter Kind of Cut


By PETER EAVIS

FedEx may not look like the kindest company after announcing wage cuts Thursday. But the move could turn out to be one of the smartest corporate responses to the recession -- and may become widely mimicked.

If executed well, cuts in wages could even help the economy out of recession, not to mention benefiting the shareholders in the companies that do them.

In response to terrible shipping trends, FedEx said next year senior execs would have salaries pruned by 7.5%-10%, while other salaried employees would face a 5% reduction. Hourly workers aren't included in these cuts.

From an economic perspective, targeting salaries makes sense at FedEx. Wages and benefits are the largest single operating expense by far -- and are typically equivalent to just over a third of revenue.

Why might this approach work?

It could help avoid the disruptive and expensive process of firing lots of workers in a trough -- and the added cost of rehiring them when the recovery occurs. FedEx's decision to cut pay for its better-paid employees might also give management credibility to ask for cuts elsewhere if the recession drags on.

The macroeconomic benefit from cutting wages comes from three sources. First, if it does indeed lead to fewer layoffs, aggregate consumption may take less of a hit. Second, banks could face lower losses from debt defaults. Third, one of the good things about recessions is that they can bring certain prices down to sustainable levels, setting the foundation for an economic bounce back. It makes little sense for wages to be exempt from that adjustment.

"The faster you get prices, including the cost of labor, to equilibrate, the faster you can get on with the recovery," says Paul Kasriel, director of economic research at Northern Trust.

The risk is that wage cuts stoke labor discontent and lead to production disruptions in a time of economic weakness. The threat of a weak economy may not be a deterrent to industrial action. After all, it didn't deter strikes over the past 18 months at Boeing and American Axle.

Write to Peter Eavis at [email protected]

Well, I didn't want to get sued for using a copyrighted name. At FedEx I think it's actually Kewl-Ayd. :rolleyes:

We'll trade your "glass-half-empty" MM guy for our 150% totally-dry-empty Biggs guy any day... :D

Just kidding folks... ;)

Taking it all in
 

After taking all of this in I applied mathematical equations to account for yellow paint, solar angle, carbon output, course corrections, Bernie Madoff and the positive affect of Christmas I have come to one conclusion....

My half empty glass of Baileys is now half full.

BTW isn't it ironic the man who allegedly stole 50mil pronounces his last name "made off" as in made off with all your money.

Not doom and gloom, and I certainly am not advocating a furlough BUT......so much for the two explanations why we wouldn't have furloughs. First, the one about how that type of news to the financial market would lead to a large sell-off of the stock. After the first-of-it's-kind announcement today, stock only dropped 1.7% on today's trading. My guess is it might actually cause a rise in the stock prices since Fedex will be seen as staying ahead of the curve. Second,(longstanding theory has it) if you're going to furlough for less than 18 months it is financially prohibitive due to re-training and re-qualification expenses. We are so fat right now on pilots they could send 250-500 of us packing, tweak up the optimizer a little more and reduce carryover and bada-bing...cash neutral.
And please spare me the response about "if you talk about it, they just might do it." The bean counters and decision-makers certainly don't waste their time reading the tea leaves of line pilots like me before they make their decisions.
All in all...if you're in that group of bottom 10% on the seniority list like I am, be prepared for anything after the first of the year. Actually had an over 60 guy tell me today that it would be "easier" for a young guy like me because I would have more time to recover from this kind of situation than he would. Made perfect sense to me seeing as how he has only had over 30 years with the company, sits carryover reserve and banks a cool 100 hours a month for sitting in Memphis. Good thing he can do that from a window seat. Who....ME bitter??!!

Soooo, what does this mean for us?

I gotta ask the obvious, I appreciate the effort noted in this thread by our superiors....but, WHY?!

WE STILL MADE MONEY THIS QUARTER (and the last couple dozen too, last time I checked)!

Am I the only one that reads these qtrly reports showing a PROFIT?!!!

What you are talking about, the Cash Balance Plan, replaced the non-pilot A-plan many years ago. The 401K plan was changed 1-2 years ago, and is the plan referenced in todays news. FDX matches the 1st 1% and half the next 5% of salary that a non-pilot employee contributes. As long as an employee contributes at least 6% of their salary, Fred was matching 3.5%. That is what the average employee loses. Using my SO as an example, that's about $1800 year, plus the 5% salary cut and no merit raise this year.

I hear ya, and to a point, I agree. But the profit is certainly down, and that's with some fairly significant cost cutting measures already in place.
I'm also glad to be part of a company that doesn't stick its head in the sand while pi$$ing away millions.

50mil??? You mean 50 Billion, don't you?

Follow the whole thread and you'll see what I'm talking about.

SO = second officer, or significant other? :rolleyes:

Rog on all that.

Not disagreeing with you, just trying to clarify the two different plans. Obviously some confusion by various folks on what the non-pilot, non-executive types get for retirement.

And SO = the wife

Great, another old guy telling all the young bucks that everything is going to be fine - all the while he's bending you over the table.

The AGE 65 rule is a travesty that is going to destroy a lot of lives and families in 2009. But at least the old guys can still take Viagra and fly to Asia, and maybe buy another boat too.

What a shame. :mad:

What is your solution though? Is there anything that can be done?

I'm not a proponent or a defender of the age 65 rule or the way it was introduced however since there's nothing we can do why even bring it up?

My solution would be to furlough all the old guys to the street. That way they can go play golf, fish and spend their millions on their grandkids.

And then hopefully, the younger group of pilots just starting out with new mortgages, families and student loans won't be furloughed.

It's amazing to me that the useless Baby Boomers are so willing to screw the next generation.

So what would I do? I would like to propose a law in congress that says if there are to be any furloughs, anyone who was scheduled to retire before Age 65 was passed last year, gets furloughed instead.

It sounds great but you know very well it's totally unrealistic (although I want you to pursue this! ;)). So it's sort of like ****ing (ooops I meant urinating) into the wind, you'll be the only one who gets affected. (of course, in your case I don't think you have to worry about being furloughed but we appreciate your concern for your junior brothers and sisters! :D)

Are you done with your name calling yet

The 401K was beefed up - raising the company's contribution from a max of $500/yr to a max of 3.5% of eligible earnings, and the defined benefit Pension Plan was frozen. You are correct that all employees now also receive benefits under the defined contribution Portable Pension Account, which was an optional plan instituted in '03. Company contributions to the PPA run from 5% to 8% of eligible earnings depending on longevity.

What was suspended was the 3.5% 401k contribution, so the hourly and salaried employees have lost 30-40% of their retirement benefits (assuming a 6% or greater 401K withholding) at least until 2010. There now was that precise enough?

My main point though was that this is all happening while the company's current qtr earnings are in line with the past year's, and projections for the rest of the fiscal year, although reduced, are still positive. The bottom line is that there are going to be some unhappy folks on the property.