FedEx to increase profit by HK$13.1 billion

Company finds new ways to boost growth as customers go for cheaper alternatives

PUBLISHED : Thursday, 11 October, 2012, 12:00am
UPDATED : Thursday, 11 October, 2012, 3:03am

FedEx has set a goal of boosting profit by US$1.7 billion within three years, primarily through cost reductions, to reposition the company as customers shift to slower, cheaper deliveries from costlier overnight shipments.

Chief executive Fred Smith set that target on Tuesday in a speech to analysts and investors in Memphis, Tennessee, without saying how the goal will be achieved.

Details, including savings and efficiency gains, will be made public today.

The changes would allow the operator of the world's largest cargo airline to "deliver the performance to ensure the near and long-term success of FedEx", Smith said.

"We believe we can do this even in low-growth environments for global trade and within the major economies."

The size of the target reflects FedEx's view that the move of some customers to ground, freight and even ocean shipping is permanent and not just linked to a slowing economy. That transition also threatens to affect United Parcel Service and DHL Worldwide Express.

FedEx also announced that David Rebholz, the chief executive of its FedEx Ground unit, will retire from May 31 next year. Rebholz, who will be 60 then, has led the unit since 2007 and also serves on the company's strategic management committee. A successor will be named later.

Smith said FedEx expected to achieve a big portion of the cost-saving benefits by fiscal 2015, with most reductions coming from the Express and Services divisions.

FedEx has gained 2.5 per cent this year, trailing the 15 per cent advance in the Standard & Poor's 500 Index. UPS slid 0.2 per cent over the same period.

FedEx shares fell 0.9 per cent to close at US$85.58 on Tuesday.

Smith pioneered the modern air-freight industry as he took an idea in one of his college essays and built it into the company he runs 41 years later.

FedEx Express, the biggest unit, uses planes to expedite shipments of goods as varied as electronics, pharmaceuticals and financial documents.