FedEx: Can Restructuring Help?

Slow growth in the industrial sector this year has prompted an industry wide trend. As Seeking Alpha noted in a recent article, Harley Davidson (NYSE:HOG), Ford (NYSE:F), and General Motors (NYSE:GM) have begun to restructure cost as a means to maintain profit levels.

FedEx (NYSE:FDX) is no exception to the trend. “Structural changes in FedEx were already being expected by the market for some time now,” said the publication. The company told investors during a meeting last week that it had set a $1.7 billion “profitability improvement” target for the next three years, according to Yahoo Finance. Stock prices have been up an average of 6 percent since the announcement.

In regards to FedEx’s restructuring plans, Seeking Alpha said that “the bottom line improvement will come from both revenue improvement as well as cost cutting.” The company intends to increase profits with $1.2 billion worth of cost-cutting initiatives and revenue growth within the Express division, where the company makes 62 percent of its total revenue. FedEx’s plans to streamline the division by cutting jobs.

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“We look at the world differently now. We’re more conservative,” Dave Bronczek, the head of the Express unit, told Bloomberg on October 10.

FedEx has further improvements planned. According to Seeking Alpha, savings of $300 million will come from modernizing the delivery services’ air fleet with Boeing’s (NYSE:BA) 757 and 767 planes. These planes will allow for fewer flights carrying more cargo than its older, fuel-inefficient jets. Not only will FedEx’s air fleet be modernized, but the company’s ground fleet will undergo changes as well and include the replacement of 500 vehicles.

“The overhaul reflects FedEx’s view that the move of some customers to ground, freight and even ocean shipping is permanent and not a temporary change linked to a slowing economy,” reported Bloomberg.

The company’s changes could threaten FedEx’s competitors, United Parcel Service (NYSE:UPS) and Deutsche Post’s (DPSTF.PK) DHL Worldwide Express.

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