Monday, June 4, 2012

Scope of change at FedEx unclear

The Commercial Appeal ( Memphis , TN )

May 31, 2012 Thursday
Final Edition

Scope of change at FedEx unclear;
Predicted restructuring expected to resemble '04

BYLINE: Wayne Risher

Analysts don't know the size or scope of anticipated restructuring at Memphis-based FedEx Corp. but believe it could look more like 2004 than 2009.

Some believe personnel cuts are inevitable, but suggest the company is likely to pursue a voluntary approach that would rely on attrition and buyouts.

Looking toward an earnings report June 19 and an October investor meeting, the analyst world has been abuzz with speculation about what FedEx might do to boost disappointing profits in the Express division.

Some expect the company to announce a plan between now and October, while others say it's a work in progress.

Art Hatfield, analyst with Raymond James in Memphis , said Wednesday that restructuring is "not new news. They've been talking about restructuring their domestic network for awhile, and they've been in the process of doing it. I don't think it's going to be a big bang."

"I don't know how big it's going to be," Hatfield continued. "My suspicion is that nobody is going to be asked to leave involuntarily. My suspicion is it will be done voluntarily."

"We're not saying that's going to happen. I'm just saying that makes sense. You cannot take assets out of service without affecting people."

Scott Stratton, leader of FedEx's Air Line Pilots Association unit, said the union hadn't received an official briefing on the potential restructuring, but was open to talking.

FedEx declined comment.

Helane Becker, analyst with Dahlman Rose & Co., speculated FedEx would offer an early retirement program rather than using layoffs.

In 2003, with the economy still recovering from Sept. 11, 2001, terrorist attacks, FedEx dangled voluntary buyouts as part of a push toward 10 percent operating margins.

The offer got more takers than the company anticipated and trimmed about 3,600 from the payroll by June 30, 2005.

In 2009, the company eliminated 3,100 jobs, some of them involuntarily, in an effort to balance expenses against weak demand coming out of the great recession.

One round of those cuts slashed 1,000 jobs companywide, including an estimated 500 in Memphis , where FedEx employs about 30,000.

Becker said in a research note she expects FedEx to follow a strategy similar to what DHL outlined recently: increasing revenues and productivity and reducing costs.

"We believe the focus will be on replacing three-crew, three-engine aircraft with two-crew, two-engine aircraft," Becker wrote. "This will save approximately $500 million annually on maintenance costs, fuel costs and crew costs. Older aircraft comprise about 25 percent of FedEx's fleet, so the bottom line impact of $1 a share is very real."

FedEx Express' fleet modernization program calls for 48 Boeing 727s, four MD 10s and 10 MD 11s to be replaced by newer, more-fuel-efficient aircraft, including Boeing 757s, 767s and 777s over the next five years.

With Express margins languishing - the last three quarters were 4.4 percent, 5.2 percent and 5.3 percent, respectively - Becker and others believe fleet replacement and network rationalization will be accelerated.

"I think it's going to be more aggressive," she said. "They'll probably push it along and make it happen faster."


Anonymous said...

Here come more dockworker layoffs and cuts in health insurance and full time benefits.

Anonymous said...

FedEx has always been good to it's People and I'm sure they will continue to do what's best for them.

Anonymous said...

@Anonymous FedEx is a great company, but have they always done what is best for their workers? I don't think so. They constantly change their rules for no apparent reason (snapshot) and they charge more and more for their health insurance (yes, maybe the guys get a pay raise, but it never covers the increase in the cost of health insurance). FedEx doesn't do what is best for the workers, it does what is best for its shareholders and their pockets.

irudedog said...

That is the true fedex. And with a union in place at fedex freight, we can make a good company like fedex an even better one!

Not just for fedex and their shareholders but also for their employees who keep it profitable!

Not like the shareholders who sit on their ass and do nothing of value but wait for a check!