FedEx to offer US staff buyouts in cost cut effort

August 13, 2012 7:44:36 AM PDT
FedEx will soon begin offering buyouts to U.S. employees in an effort to cut costs in the face of a weakening global economy.

The world's second largest package delivery company hinted at cutbacks earlier this summer when it said that slowing economic growth would crimp its earnings well into next year. It has already removed some aircraft from its fleet of more than 600 to account for a loss of demand.

While FedEx hasn't yet decided how many positions will be eliminated, it will likely focus on slow-growth areas like its Express and Services units.

Express is where FedEx got its start in 1971, and it's still the company's biggest segment by far. The speedy shipping division, which moves 3.5 million packages on an average day, has been hit hard as people shift to slower delivery methods to conserve cash. The unit is also being dragged down slowing Asian growth and a reduction in demand for Asian goods from the U.S. and Europe. The unit reported revenue of $26.5 billion in the latest fiscal year and has more than 146,000 employees worldwide - 102,000 of those in the U.S.

Services is FedEx's behind-the-scenes logistics division, but it also includes FedEx Office, formerly Kinko's. It was formed in 2000 and with annual revenue of $1.7 billion in 2012, is one of FedEx's smallest units. It has 13,000 employees, all of whom are U.S. based.

FedEx said those that are close to retirement are also eligible for buyouts.

When it reported fourth-quarter earnings in June, FedEx vowed significant cost cuts to offset any drop in shipments. Its forecast for the first-quarter, which ends this month, fell well below Wall Street expectations.

And second-quarter results released in late July by larger rival United Parcel Service Inc. suggested that the global economic slowdown may be even worse than FedEx anticipated.

UPS lowered its forecast for all of 2012 and said its third-quarter earnings will fall below last year's results, with many customers fearing what's in store for the second half of the year. Their skittishness was also felt in the second quarter, where UPS missed analysts' expectations for both earnings and revenue.

UPS also said it's making cuts in its business to make up for the shortfall. It predicts global trade will grow even slower than the world's economies - a trend not seen since the recession.

Shares of FedEx Corp. rose 9 cents to $87.89 in early morning trading Monday. UPS lost 30 cents to hit $76.


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