(Photo by Michael Carter)
FedEx reported net income of $493 million for its fiscal second quarter ended Nov. 30, up 3% compared to $479 million in the year-ago period, and announced it is initiating "broad cost reduction actions" to contend with a "decline in shipping trends" and "very difficult" economic conditions. The company implemented a hiring freeze, a 7.5%-10% salary reduction for senior executives and a 5% pay cut for salaried personnel exempt from labor contracts. Chairman, President and CEO Frederick Smith said his salary would be lowered by 20%.
Additionally, matching 401(k) contributions will be suspended for a year from Feb. 1, an unspecified number of jobs will be eliminated in the Freight and Office units and there will be discretionary spending cuts. All told, FedEx expects to reduce expenses by $200 million for the remainder of FY09 and by another $600 million for FY10.
Smith cited "some of the worst economic conditions in the company's 35-year history," and CFO Alan Graf said that despite expected new business in the domestic market owing to DHL's US pullout, "significant uncertainty exists in the global economy." Nevertheless, the steep drop in fuel prices during the fiscal second quarter prevented an earnings decline. Revenue rose 1% to $9.54 billion while expenses increased 1% to $8.75 billion and operating income was flat at $784 million.
The FedEx Express airline unit posted a 1% increase in revenue to $6.1 billion and a 2% lift in operating income to $540 million in the quarter. International Priority package revenue, highly dependent on air operations, grew 1% owing to higher fuel surcharges but average daily IP package volume lowered 7%. US domestic express package volume declined 8%.