Federal Express will scrap its ZapMail document delivery service because of its persistent losses and high costs, the package transportation giant announced Monday.
Investors welcomed the announcement, reflecting a widespread view that ZapMail was an excessive financial drain on the company and had little chance of becoming profitable. Federal Express’ stock price soared $8.25 a share to $63.75 in New York Stock Exchange trading.
Discontinuing ZapMail, which promises to deliver high-quality copies anywhere in the country in less than two hours, will reduce the company’s after-tax earnings by at least $190 million in the fiscal quarter that ends Nov. 30, the Memphis, Tenn.-based company said.
No Layoffs Planned
Federal Express did not specify whether the move will result in a quarterly loss. But in the comparable quarter a year ago, the company earned $34.9 million on revenue of $625.5 million.
Frederick W. Smith, founder and chief executive of Federal Express, said the 1,300 employees working with ZapMail will remain on the company payroll and be assigned other duties. Federal Express employs 40,000 people.
ZapMail’s pickup and delivery service will end in mid-November, and customers wishing to purchase ZapMail facsimile machines can do so until Feb. 1, the company said.
Federal Express, one of the major small-package delivery companies in the United States, began ZapMail in July, 1984, utilizing a network of ground couriers and facsimile machines.
But the service has suffered consistently disappointing volume, and financial analysts have said ZapMail generates only a fraction of the business needed to break even.
The company invested more than $100 million to start the service and reportedly has spent at least $30 million per quarter to keep it going. Two years ago, the company said it had ambitious plans for ZapMail including a $1.2-billion investment over the next decade.
Smith, who announced the end of the service at the company’s annual stockholders meeting, said Federal Express can weather the loss.
“This is well within our means when you consider the size of Federal Express’ revenues, anticipated to be in excess of $3 billion this fiscal year, our accumulated shareholders’ equity, which exceeds $1.1 billion, our relatively low level of debt and our strong cash flow,” Smith said.
“It became evident that our company would be subjected to several years of substantial losses and the project would require several hundred million dollars more investment,” he said.