NEW YORK (AP) - Despite gaining new customers from the shrinking U.S. presence of DHL and lower fuel prices, the world’s two largest package delivery companies are battening down the hatches as they prepare for weak global economic conditions to get even worse.
FedEx Corp. said Thursday it will cut more jobs and trim wages again, after reporting its fiscal third-quarter profit tumbled 75 percent on sliding revenue.
“Our financial performance was sharply lower during the quarter due to the global recession,” Chairman, President and Chief Executive Frederick W. Smith said. “While we are gaining market share in all of our transportation segments, the downturn in our industry and the severity and expected duration of the recession require that we take additional actions.”
UPS Inc. Chairman and CEO Scott Davis had similar comments last month after his company reported lower fourth-quarter revenue. “The severe decline in economic activity around the world resulted in sharply lower package and freight volumes for UPS,” he said.
Economists and analysts consider FedEx and larger rival UPS to be bellwethers of the global economy, since they deal with such basic indicators of company health as orders and product shipments. Both companies have been courting former customers of DHL, which pulled out of ground deliveries in the U.S. earlier this year.
Memphis, Tenn.-based FedEx earned $97 million, or 31 cents per share, compared with $393 million, or $1.26 a year earlier in the December-to-February period. Revenue fell 14 percent from a year ago, to $8.14 billion, and 14.7 percent from the previous quarter.
Atlanta-based UPS, the world biggest package shipper, said in February that it made a profit in the fourth quarter, compared to a year-ago loss, when it was weighed down by a big one-time charge. But quarterly sales fell 5.2 percent. The company suspended its 401(k) match, announced plans to cut an unspecified number of jobs and froze management salaries.
Three months ago, FedEx announced broad-based cost cuts including a 20 percent pay cut for CEO Smith, a 7.5 to 10 percent cut for other executives and a 5 percent cut for thousands of others. The company also froze retirement plan contributions for a year, among other cost-saving measures. FedEx employs about 290,000 people worldwide.
Now FedEx plans to cut more jobs _ although it didn’t say how many. It also plans to reduce some workers’ hours and wages. The company will also trim air and truck capacity. FedEx hopes to save about $1 billion with the cuts in fiscal 2010, which starts in June.
“I think that what we are showing by the cost reductions we had already taken and the ones that we are about to take, we have a lot more flexibility and variability in our cost structure than most people give us credit for,” Chief Financial Officer Alan Graf said in a conference call with analysts.
The biggest part of the cost cuts will come in FedEx Express, according to Dave Bronczek, the unit’s chief executive. “(Express) is all around the world…Asia, Europe, here in the United States. So we have a lot of levers to pull _ we have a lot of initiatives under way, and we are moving forward on all of those initiatives, he said.”
Standard & Poor’s analyst Jim Corridore still thinks FedEx is in a good position to take advantage of an economic recovery, despite worse-than-expected demand and pricing in the third-quarter. He reiterated his “Buy” rating on FedEx, noting the stock has already been battered by negative economic news. Shares lost about 39 percent in the fiscal third quarter.
FedEx shares rose $1.97, or 4.6 percent to $45.02 in late afternoon trading.