Stock of the Day
|
Fedex (FDX)
More Cost Cutting at Shiping Powerhouse Fedex (FDX)
Shipping powerhouse, Fedex announced $1 billion in cost cutting plans as fiscal third-quarter net income plunged 75% on slumping demand. Last quarter's profits fell to $97 million or 31 cents per share, from $393 million or $1.26 per share in the same period a year earlier. How does Fedex's lackluster performance compare with its competitors? What sort of cuts will be made to increase its profitability?
|
| Daily Chart |
If you are not able to see the chart, your email client probably does not support javascript. To view it, please click here
|
| Stock Analysis |
The benefit of lower fuel prices was not able to offset severe weakness in the global economy and the company plans to eliminate more jobs and make other cutbacks. Fedex has already reduced salaries and other compensation for 36,000 of its 290,000 employees by up to 20% including Chief Executive Frederick Smith. In February, it had suspended paying matching contributions to its 401k retirement plan for a minimum of one year. It has also laid off 900 employees at its freight unit last month. To further reduce costs, FedEx has announced additional jobs cuts and plans to scale back some workers' hours and wages and trim air and truck capacity.
|
"Our financial performance was sharply lower during the quarter due to the global recession," said Fred Smith, FedEx chairman, president and chief executive. "While we are gaining market share in all of our transportation segments, the downturn in our industry and the severity and expected duration of the recession require that we take additional action." The company said it will take a charge of about $100 million in its fiscal fourth-quarter for the changes, excluding any writedowns on the value of assets.
|
Operating margins fell in most areas. FedEx's express segment dropped to 0.9% from 6.9% as revenue fell 18% and average daily volume slid 5%. Daily volume at the ground segment rose 2% on continued growth in the FedEx Home Delivery service. According to the Bureau of Transportation Statistics, domestic air-freight shipments were down about 12% among U.S. carriers, while international shipping plunged 28% in December. Globally, the economic downturn reduced cargo traffic by 22.6% in while traffic in the Asia Pacific region, the largest cargo shipping and receiving area in the world, fell 26%, the International Air Transport Association said last month.
|
Things are looking equally gloomy at competitor, United Parcel Service (UPS: Charts, News, Offers) with the stock down over 15% in 2009. Today Moody's Investors Service lowered United Parcel Service's senior unsecured rating to Aa3 from Aa2 and affirmed its P-1 short term rating. The move is in response to weak volumes at UPS due to the global recession. Both UPS and Fedex have fared better than competitor DHL which has discountinued its U.S. Express offerings. Many economists see a turnaround in the macro environment in either late 2009 or 2010. The shipping industry is likely to follow suit.
|
Profile |
Click here to view a detailed profile of Fedex.
|
|
|
|
|
