FedEx profit rises 3 percent; plans salary cuts

FedEx Chief Executive Frederick W. Smith said the company's earnings are "increasingly being challenged by some of the worst economic conditions in the company's 35-year operating history." (AP Photo/David Zalubowski)

By SAMANTHA BOMKAMP
The Associated Press

12/18/2008

NEW YORK — FedEx Corp. said Wednesday its fiscal second-quarter earnings rose 3 percent, narrowly topping Wall Street's expectations, but it announced further cost cuts as demand continues to slump.

Chief Executive Frederick W. Smith said the company's earnings are "increasingly being challenged by some of the worst economic conditions in the company's 35-year operating history."

The Memphis, Tenn.-based company earned $493 million, or $1.58 per share, compared with a year-ago profit of $479 million, or $1.54 per share. Revenue rose 1 percent to $9.54 billion.

Analysts polled by Thomson Reuters predicted a profit of $1.57 per share on revenue of $9.87 billion.

The package delivery company said it will implement pay cuts for senior executives and a 1-year freeze on 401(k) contributions. On Jan. 1, CEO Smith will take a 20 percent pay cut, and other top brass will take a reduction in pay between 7.5 percent and 10 percent.

FedEx will also implement a 5 percent pay cut for all remaining U.S. "salaried exempt" personnel.

Combined, the company expects these measures to save $200 million through the remainder of the fiscal year ending in May and $600 million in the next fiscal year.

The company also said it is cutting jobs in its FedEx Office unit, and will close some store locations as the company anticipates business at its copy and shipping stores will continue to wain.

The company has already begun more that $1 billion in cost-saving measures including job cuts across its FedEx Freight and FedEx Office divisions, a reduction of some workers' hours, elimination of certain bonuses and implementation of a hiring freeze.

FedEx did not issue a third-quarter earnings prediction, citing economic uncertainty, but said it expects to earn between 69 cents and $1.94 per share across the third and fourth quarters. Analysts polled by Thomson Reuters predict third-quarter earnings of 54 cents, and fourth-quarter earnings of 85 cents per share.

FedEx affirmed its forecast for 2009, after cutting the outlook last week. FedEx said that weakenening global economic conditions are offsetting sizable savings from a steep drop in fuel prices and the benefit of new customers from DHL, which is dramatically scaling back its U.S operations.