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VOL. 6 | NO. 44 | Saturday, October 26, 2013

Chasing Growth

Memphis’ Fortune 500 companies chart paths forward

By Andy Meek

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Improving same-store sales, an expanding operating margin, big give-backs of capital to shareholders and steady square footage growth dominate the story at Fortune 500 company AutoZone Inc.

(Memphis News File/Brandon Dill)

The pressure to show investors growth and a return is one of the most basic realities of operating as a public company.

And the three Memphis-based companies on this year’s Fortune 500 list are pressing forward on their own distinct paths toward satisfying that pressure.

AutoZone Inc., FedEx Corp. and International Paper Co. each have unique challenges facing them. FedEx has to work around rising fuel prices, for example, and International Paper is dealing with a declining paper industry in some markets as digital technology is on the rise.

Then there are the macro challenges of national and global economies that aren’t as strong as they were during the boom years of the last decade. Against that backdrop, AutoZone’s penny-pinching customers might put off buying items from the car parts retailer to make repairs, and FedEx customers might shy away from the package delivery giant’s faster – but more expensive – shipping options.

Nevertheless, 2013 has been a positive one for the companies in many respects, such as the fact that the stock prices of all three are up year to date. Some are hitting even more significant milestones than that.

A few weeks ago, AutoZone chairman, CEO and president Bill Rhodes told analysts during the company’s most recent earnings presentation that AutoZone has surpassed $9 billion in sales this year.

Raymond James sponsored two days of investor meetings for AutoZone’s senior management in mid-October, and the meetings underscored a few key takeaways. Among them: improving same-store sales, an expanding operating margin, big give-backs of capital to shareholders and steady square footage growth dominate the AutoZone story of late.

AutoZone also hosted its national sales meeting in Memphis for AutoZoners at the end of September, and during his address to employees, Rhodes focused on a theme of “creating customers for life.”

“We’ve always been focused on creating customers for life, but that will be our annual operating theme this year, in order to intensify our focus on it,” Rhodes told analysts on a conference call this month.

One way to focus on new customers is to bring in more of them, and this year AutoZone has opened the doors at 153 new stores. AutoZone also has begun rolling out new customer service technology at its stores and is making investments and enhancements to capture more data about customer shopping patterns.

“We have a very exciting year planned in 2014,” Rhodes said. “I can confidently say we feel the actions we have taken and the investments we’ve made in 2013 position us to grow sales in 2014 across all of our lines of business.”

International Paper, meanwhile, is a global leader in the paper and packaging industry which has manufacturing operations around the world – and is part of a paper industry that’s in decline in some markets, according to Chicago-based investment research firm Morningstar Inc.

The economy notwithstanding, International Paper shares this summer reached their highest level in more than 13 years.

“The U.S. and global economies are still recovering, but the cash flow we’re able to generate, I think, gives me encouragement that we’re going to have a substantially better second half of the year,” said company chairman and CEO John Faraci.

In Memphis, International Paper is in the process of a significant headquarters expansion that includes building a fourth building at its East Memphis office campus. That tower is expected to be finished in the second quarter of 2015.

Underscoring its interest in Memphis, International Paper senior vice president Tom Kadien said – after Highwoods Properties Inc. signed a long-term build-to-suit lease with the company in March – that International Paper continues to want to grow here.

The company, of course, is more than the physical presence of its buildings and people. International Paper says it provides more than $3 million every year in Memphis-area giving, and those contributions included spending nearly $60 million on vendors in Memphis in 2012.

More than AutoZone and International Paper, meanwhile, FedEx attracts a large and sometimes outsized share of attention because of its status as an economic bellwether.

The company’s Memphis World Hub includes more than 40 miles of conveyer belts and sorts an average of 1.5 million packages a day. Workers there who load more than 10,000 FedEx flights each month support a global supply chain and help make the company a leading indicator of economic conditions.

Which is why, last month, two U.S. senators showed up at the hub as part of their push to simplify the nation’s tax code.

FedEx chairman, president and CEO Frederick W. Smith hosted Sens. Max Baucus, D-Mont., and Dave Camp, R-Mich., for a roundtable discussion on the need for tax reform.

“The U.S. corporate tax system today is dysfunctional, discourages investment, and is a competitive disadvantage for American businesses,” Smith said after the discussion.

That kind of conversation is more evidence of FedEx’s agenda-setting status. But even it is not immune to the need for realignment to meet economic challenges.

As part of a push to boost operating profits by $1.6 billion by the end of fiscal year 2016, 3,600 FedEx employees took a voluntary buyout earlier this year. As of Aug. 31, 45 percent had left the company and the rest will leave through the end of next June.

FedEx Express recently took delivery of its first new Boeing 767-300 freighter, which uses about 30 percent less fuel. Earlier this month, the company announced a new flat-rate shipping option targeting individuals and small businesses that don’t ship very often, and for the quarter ended Aug. 31, the company posted a quarterly profit 7 percent higher than a year ago.

FedEx, Smith told analysts in a presentation about the quarter’s earnings, is well positioned for continued growth and success.

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MORTGAGES 95 202 13,529
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