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VOL. 131 | NO. 55 | Thursday, March 17, 2016

FedEx CEO Downplays Amazon ‘Industry Disruption’

By Bill Dries

Print | Front Page | Email this story | Email reporter | Comments ()

FedEx Corp. founder and CEO Fred Smith never said the word “Amazon,” but the e-commerce giant was clearly on his mind Wednesday.

Smith addressed speculation about “industry disruption” by Amazon from the outset of Memphis-based FedEx’s quarterly earnings conference call. He also defended the Trans-Pacific Partnership trade agreement, noting that both of the frontrunners for the Democratic and Republican presidential nominations are opposed to it.

He likened their opposition to believing in the medieval practice of using leeches to cure various ills.

FedEx Corp. saw $12.7 billion in revenue and $692 million in net income for its fiscal third quarter, the company reported Wednesday.

The adjusted earnings equated to $2.51 per share, up 23.6 percent from $2.03 per share a year ago. Analysts had anticipated FedEx would post $2.35 in earnings per share on $12.4 billion in revenue.


(Daily News File)

Meanwhile, Smith said the industry disruption discussed since Amazon announced plans to lease 20 Boeing 767 planes from Air Transport Services Group has been “fueled by fantastical articles … and reports which are devoid of in-depth knowledge of logistics systems and the markets FedEx serves,” Smith said, emphasizing that he specifically chose the term “fantastical.”

Smith also said he doesn’t see the big three of e-commerce shipping – FedEx, UPS and the U.S. Postal Service – changing.

“It is highly likely these entities will remain primary carriers for e-commerce shipments in the U.S. for the foreseeable future,” Smith added.

While Smith didn’t mention Amazon by name, Mike Glenn, FedEx’s executive vice president of market development and corporate communications, did.

Glenn said Amazon remains a valued customer of FedEx, even with Amazon’s exploration of its own delivery services. And he said other FedEx customers also have their own delivery services that they use at times.

“It would be a daunting task requiring billions upon billions of dollars … to replicate existing networks like FedEx,” Glenn said, adding no single customer of FedEx accounts for more than 3 percent of the company’s total revenue.

“We manage these relationships carefully to make sure we don’t become overly dependent on any one customer,” he said.

Later in the call, Smith was asked again about Amazon’s move closer to consumers and if that changes FedEx’s capital priorities.

“We have the capability to pick up, transport and deliver an item from 95 percent of the human beings on the planet … in one to two business days door to door,” he said. “It’s network density and revenue per delivery stop that are the determinant of who is going to deliver these packages in the years to come.”

Asked about the pending Trans-Pacific Partnership and the likelihood of its passage, Smith noted that presidential frontrunners Donald Trump and Hillary Clinton are each opposed to TPP.

“The thought that trade has not been a great thing for the world and America is absolutely contrary to the facts,” Smith said without mentioning Trump or Clinton by name.

“To lump in all trade with the trade practices of a couple of trading partners is like putting leeches on you and bleeding you like they did in the old days, and think you are going to get better.”

Smith said the TPP would reduce 18,000 tariffs on U.S. goods.

“It helps us a lot,” he added. “I hope as we get into the general election, the profound benefits of free trade over many, many decades can be understood.”

Asked about “regulatory headwinds” by an analyst from Raymond James, Smith coupled those headwinds with “bad trade policy” in their impact.

“It’s in every possible crevice of the organization,” Smith said of regulations. “If you don’t try to stop these things, the natural course of events is they come on the bottom of the ship like barnacles. That’s happening and that’s why we have low growth rate.”

FedEx has adjusted this year's earnings for expenses related to certain legal matters (61 cents per share) and the pending acquisition of Dutch delivery company TNT Express (6 cents per share).

Seven cents of the per-share earnings came from the company’s buyback of 7.3 million shares of FedEx common stock.

The company expects to close on the TNT deal in the first half of 2016, said FedEx counsel Christine Richards.

FedEx announced in January a new share repurchase program of up to 25 million shares.

FedEx executives also upped their adjusted earnings forecast for the fiscal year to a minimum of $10.70 per share, compared with the previous forecast of $10.40. The outlook is based on moderate economic growth and a capital spending forecast of $4.8 billion for the fiscal year.

Broken down by segments, FedEx Express reported quarterly revenue of $6.56 billion, down 1 percent from last year's $6.66 billion. Operating income of $595 million was up 51 percent from $393 million in Q3 2015.

FedEx Freight reported revenue of $1.45 billion, up 1 percent from $1.43 billion last year. Operating income totaled $56 million, down 16 percent from $67 million a year ago. The decrease, according to the company, was "primarily due to salaries and employee benefits expense outpacing volume growth."

FedEx Ground, meanwhile, reported $4.41 billion in quarterly revenue, a 30 percent increase from a year ago. Its operating income of $557 million was down less than 1 percent from $559 million last year.

The company also reported Wednesday that its FedEx Ground segment has reached agreements to settle all of the 19 cases on appeal in the multidistrict independent contractor litigation. FedEx recognized a liability for the net expected loss of $204 million for the settlements, which will require court approval.

PROPERTY SALES 110 110 3,508
MORTGAGES 42 42 2,321
BANKRUPTCIES 24 24 1,928