The world’s second largest package delivery company FedEx Corporation (NYSE:FDX) unveiled a detailed plan to boost its annual profits by $1.7 billion within three years through job cuts and efficiency improvements. FedEx Corporation, considered st the customers are shifting to low cost, slower delivery methods such as trucks and ships as the economic growth is stalling.
The company’s founder and chief executive Fred Smith said in a statement on Wednesday that most of the cost cuts will be made in the Express and Service units. These two units are the most negatively impacted by the global economic slowdown. Smith said in August that several thousand employees will be laid off as a part of the restructuring plan, and most will be workers living in the United States.
Express formed the beginning of FedEx Corporation (NYSE:FDX) in 1971, and by far it still remains the largest unit of FedEx. On average, Express delivers 3.5 million packages every day, mostly through air. It has been hit hard in recent times as customers are using slower and cheaper methods to save money. Express employs 146,000 people globally and reported a revenue of $26.5 billion last fiscal year. The Services unit, earlier known as Kinko’s, was established in 2000. Currently, it generates $1.7 billion in annual revenues and employs 13,000 people, all in the United States.
FedEx Corporation (NYSE:FDX) has decided to dispose of older aircrafts and reduce the frequency of flights. The newer planes are expected to save $300 million in fuel costs. FedEx also targets to save $400 million by eliminating redundancies and making staff more efficient. Smith said the company will also save money by improving technology that streamline the operations. Additionally, FedEx will reduce the overhead like administrative, selling and general expenses.
Bank of America Corp (NYSE:BAC) BAML analysts have a nice chart detailing the cuts:
Detail of where Express cuts are derived ($1.6 bil.)
– $400 million – Efficiency of staff functions and processes
– $300 million – Modernizing its air fleet
– $350 million – U.S. Domestic Transformation
– $350 million – International Profit Improvement
– $150 million – Targeted growth and yield management
The company slightly reduced its earnings estimates for the current fiscal year. About half of the cost cutting measures will be put to work during current fiscal year (before May 2013). The remaining plans will be implemented in the next financial year (June 2013 – May 2014). FedEx Corporation (NYSE:FDX) CEO promised investors that it won’t cut back too quickly or too much, to assuage fears that cuts may hamper the company’s growth.
Investors applauded the restructuring plan. FedEx Corporation (NYSE:FDX) shares jumped 5.2 percent to $89.99. Recently FedEx announced to acquire the Brazilian transportation company Rapidao Cometa to strengthen its position in the emerging markets.