FedEx Express restructure (Comm Appeal)
05-31-2012 | 07:11 AM
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FedEx Express restructure (Comm Appeal)
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By Wayne Risher
Memphis Commercial Appeal
Posted May 29, 2012 at 5:31 p.m.
An imminent restructuring of FedEx Express that would trim jobs, speed a shift to more fuel-efficient aircraft and rationalize the Express network.
Analysts Donald Broughton of Avondale Partners and Ken Hoexter of Bank of America Merrill Lynch said in research notes they expect the company to take steps before October to improve results.
FedEx declined comment, citing a waiting period before the company’s June 19 report of fourth-quarter and full-year earnings.
Reporting third quarter earnings March 22, company officials said Express, headquartered in Memphis, had shaved 3,500 jobs through attrition and was looking at further adjustments. They discussed efforts to reduce flight hours through fleet optimization and to right-size the fleet by deferring Boeing 777 purchases and bringing in Boeing 767s to replace slightly larger, but much less fuel-efficient MD10s.
The restructuring is needed to help the company boost Express profit margins in the face of sluggish growth both domestically and internationally, Broughton said today.
Express had an operating margin of 5.3 percent in the December-February quarter compared to 18.8 percent for FedEx Ground.
Broughton projected annual savings of more than $215 million in variable fuel and labor costs from changes in fleet composition, but he did not include estimated savings for maintenance on newer planes, head count reduction or network rationalization.
Hoexter estimated a potential savings of more than half a billion dollars from fleet, personnel and network changes combined.
The analysts said they expect restructuring news before the company hosts an investor and analyst program in Memphis in October.
“As investors, we have been disappointed with the lack of incremental margin growth in FedEx’s Express segment,” Broughton wrote. “We believe those inside FedEx are even more discouraged by this.”
FedEx officials have been aiming for 10 percent margins since at least 2010.
“We attribute much of the disappointment to lackluster volume growth in this segment, as sluggish international economic growth has weighed on (International Priority) volumes and the growth in (FedEx) Ground continues to cannibalize Domestic Express.”
“We believe it is reasonable to expect FDX to announce a restructuring of its Express business in the near future that will include: a reduction in head count through attrition and voluntary severance, an acceleration in on-boarding of more fuel efficient aircraft, and a rationalization of the Express network,” Broughton wrote.
By Wayne Risher
Memphis Commercial Appeal
Posted May 29, 2012 at 5:31 p.m.
An imminent restructuring of FedEx Express that would trim jobs, speed a shift to more fuel-efficient aircraft and rationalize the Express network.
Analysts Donald Broughton of Avondale Partners and Ken Hoexter of Bank of America Merrill Lynch said in research notes they expect the company to take steps before October to improve results.
FedEx declined comment, citing a waiting period before the company’s June 19 report of fourth-quarter and full-year earnings.
Reporting third quarter earnings March 22, company officials said Express, headquartered in Memphis, had shaved 3,500 jobs through attrition and was looking at further adjustments. They discussed efforts to reduce flight hours through fleet optimization and to right-size the fleet by deferring Boeing 777 purchases and bringing in Boeing 767s to replace slightly larger, but much less fuel-efficient MD10s.
The restructuring is needed to help the company boost Express profit margins in the face of sluggish growth both domestically and internationally, Broughton said today.
Express had an operating margin of 5.3 percent in the December-February quarter compared to 18.8 percent for FedEx Ground.
Broughton projected annual savings of more than $215 million in variable fuel and labor costs from changes in fleet composition, but he did not include estimated savings for maintenance on newer planes, head count reduction or network rationalization.
Hoexter estimated a potential savings of more than half a billion dollars from fleet, personnel and network changes combined.
The analysts said they expect restructuring news before the company hosts an investor and analyst program in Memphis in October.
“As investors, we have been disappointed with the lack of incremental margin growth in FedEx’s Express segment,” Broughton wrote. “We believe those inside FedEx are even more discouraged by this.”
FedEx officials have been aiming for 10 percent margins since at least 2010.
“We attribute much of the disappointment to lackluster volume growth in this segment, as sluggish international economic growth has weighed on (International Priority) volumes and the growth in (FedEx) Ground continues to cannibalize Domestic Express.”
“We believe it is reasonable to expect FDX to announce a restructuring of its Express business in the near future that will include: a reduction in head count through attrition and voluntary severance, an acceleration in on-boarding of more fuel efficient aircraft, and a rationalization of the Express network,” Broughton wrote.
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