FedEx to cut salaries despite profit rise
FedEx Corp. on Thursday announced more broad cost cuts -- including salary reductions -- while warning that the outlook for 2009 remained murky.
Chief Executive Frederick W. Smith said the company’s earnings were “increasingly being challenged by some of the worst economic conditions in the company’s 35-year operating history.”
FedEx reported its fiscal second-quarter earnings rose 3%, narrowly topping Wall Street’s expectations.
The Memphis, Tenn., company earned $493 million, or $1.58 a share, compared with a profit of $479 million, or $1.54, a year earlier. Revenue rose 1% to $9.54 billion.
Analysts polled by Thomson Reuters predicted profit of $1.57 a share on revenue of $9.87 billion.
The package delivery company said it would cut pay for senior executives and freeze 401(k) contributions for all employees for at least a year. On Jan. 1, Smith will take a 20% pay cut, and the pay of other top brass will fall from 7.5% to 10%.
Smith’s base salary last year was $1.43 million, according to a filing with the Securities and Exchange Commission. The figure does not include incentive pay, bonuses, company perks and the estimated value of stock holdings.
FedEx will also implement a 5% pay cut for its 36,000 U.S. nonunion salaried workers. Hourly workers such as couriers and package handlers will be spared, and mechanics and pilots are also excluded.
Combined, the company expects the measures to save $200 million through the remainder of the fiscal year ending in May and $600 million in the next fiscal year.
The company also said it had cut jobs and closed locations in its FedEx Office unit, anticipating slower business at its copy and shipping stores.
FedEx had already begun more than $1 billion in cost-saving measures, including job cuts across its FedEx Freight and FedEx Office divisions, a reduction of some workers’ hours, elimination of certain bonuses and implementation of a hiring freeze.
FedEx did not issue a fiscal third-quarter earnings prediction, citing economic uncertainty, but said it expected to earn between 69 cents and $1.94 a share across the third and fourth quarters. Analysts polled by Thomson Reuters predict third-quarter earnings of 54 cents and fourth-quarter earnings of 85 cents a share.
“Next quarter is going to be terrible, but analysts already expected it to be terrible,” Edward Jones Senior Research Analyst Dan Ortwerth said.
The performance of package shippers such as FedEx and rival UPS tends to reflect broader economic trends. Demand for business and consumer shipments is related to spending in those areas.
FedEx affirmed its forecast for 2009, after cutting the outlook last week. FedEx said that weakening global economic conditions were offsetting sizable savings from a steep drop in fuel prices and the benefit of new customers from DHL, which is dramatically scaling back its U.S. operations.
Shares of FedEx fell $1.37 to close at $62.60 Thursday.
