FedEx to Offer Voluntary Buyouts on Vow to Reduce Costs

FedEx Corp. (FDX) will offer voluntary buyouts to some workers under a pledge for “significant” cost reductions ahead of expected slower profit growth at the operator of the world’s largest cargo airline.

A “detailed analysis” is under way to determine which employees will be eligible, and offers may not be made until FedEx’s fiscal fourth quarter starting in March, Shea Leordeanu, a spokeswoman, said in an interview today.

The program is among several steps FedEx is taking to lower costs after saying in June that slowing economic growth would pressure earnings. The company is targeting its FedEx Express unit because it’s not expanding in the U.S. like FedEx Ground, which offers less-expensive and slower shipments, said Art Hatfield, a Raymond James & Associates analyst.

“The company has to make some changes to the cost structure of Express long term,” said Hatfield, who rates FedEx shares as a strong buy. “Because this is a long-term decision, they are going to be slow and methodical about how they go about it.”

The Memphis, Tennessee-based company is seen as an economic bellwether because it carries everything from mobile devices to pharmaceuticals. Customers usually reduce shipping or shift to cheaper methods when demand for their products slows with the economy.

FedEx fell less than 1 percent to $87.77 at the close in New York. The shares have gained 5.1 percent this year.

‘Weaker’ Economy

FedEx said in June that revenue and earnings growth would be slowed by “weaker economic conditions” such as the European debt crisis and slowing expansion in Asia. Customers have been shifting to deferred products from premium as they try to reduce shipping expenses.

The company that month said it was retiring 24 jet freighters and 43 older engines to better match shipping volumes. It also has said it expects to retire 21 Boeing Co. 727s this fiscal year. Those planes will be replaced with Boeing 767-300 and 757-200 aircraft that are more fuel efficient and carry lower operating costs, FedEx said.

FedEx has said it wants to return to margins of about 10 percent, which will mean trimming about $1.3 billion in annual costs, said David Vernon, a Sanford C. Bernstein & Co. analyst in New York.

‘Something More’

“That’s clearly going to take something more than buyouts targeted at nonoperating employees,” said Vernon, who rates the shares market perform. “They’ll get a bit of benefit from new aircraft, but they’re really going to have to take a look at their service levels, flight schedules and on-ground productivity.”

Buyouts will be offered only to employees who aren’t involved in handling packages or supervising workers who do so, Leordeanu said. FedEx hasn’t determined how many workers it will need to accept offers and expects to release more details at an Oct. 9-10 investor conference, she said.

The program will be focused on staff employees at FedEx Express, the air cargo unit that accounts for the bulk of sales, and FedEx Services, which operates combined sales, marketing, administrative and technology functions across other FedEx subsidiaries.

To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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