NEW YORK — FedEx Corp., the world’s second-largest package delivery company, on Wednesday detailed its plan to boost profit by $1.7 billion annually by shedding jobs, aircraft and underused assets.
FedEx aims to reach that goal within three years through cost cuts and efficiency improvements. The much anticipated restructuring is a response to a shift by customers to slower, less expensive means of delivery as the global economy struggles to grow.
Founder and CEO Fred Smith said most of the cost cuts will come in the company’s Express and Services units, which have been hurt the most by the global economic conditions. Smith said a voluntary buyout program announced in August should reduce “fixed head count by several thousand people.” A majority of those employees are in the U.S.
Express is where FedEx got its start in 1971, and it is still the company’s biggest segment by far. The division moves 3.5 million packages on an average day, mostly by air. It’s been hit hard as customers shift to slower delivery methods, such as trucks or ships, to save money. Also, as technology products get lighter, FedEx charges less to ship them. Apple Inc.’s iPhone 5 is 17 percent lighter than the first-generation model. FedEx has been disposing of older aircraft and reducing flights to reduce the unit’s costs. Express reported revenue of $26.5 billion in the latest fiscal year and has more than 146,000 employees worldwide – roughly two-thirds of those are in the U.S.
The Services unit is Fed-Ex’s behind-the-scenes logistics division, but it also includes FedEx Office, formerly Kinko’s. It was formed in 2000 and with annual revenue of $1.7 billion in fiscal 2012, is one of FedEx’s smallest units. It has 13,000 employees, all based in the U.S.
Some of the money will be saved through improved technology that allows Fed-Ex to streamline staff and operations, Smith said. It’s also trimming overhead like that in selling, general and administrative expenses.
“The key is striking the right balance between volume growth and yield improvements,” Smith said in a statement following the Tuesday opening of a meeting with investors and lenders in Memphis, Tenn. “With slow economic growth, however, the cost-reduction programs we will describe ... are also essential to achieve our financial goals.”
At the start of Wednesday’s session, FedEx slightly reduced its growth outlook for the U.S. economy from just a month ago. It maintained its forecast for global growth.
Among the cost cuts included in the company’s plan: expected savings of $700 million through a slim-down of its network — half overseas and half at home. It expects to save about $300 million in fuel and other costs from using newer planes, and $400 million by making staff more efficient and eliminating redundancies.
About half of the cost reductions are expected to be put in place in the current fiscal year that ends in May. The rest will be implemented in the following fiscal year. The company assured investors that it won’t cut back too much – or too quickly – and hurt its revenue growth.
“This is a very well-run enterprise — we can’t just cut off an arm and expect to survive,” Chief Financial Officer Alan Graf said on Wednesday.
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