Dive Brief:
- FedEx will offer voluntary buyouts to some U.S. and international employees through 2019 and into 2020, CEO Fred Smith said on a recent earnings call, offering various reasons for a squeeze on profitability in recent months.
- "Growth in U.S. deferred package volumes and higher operating costs in our FedEx Express operations negatively impacted margins during the first half of 2019," reads the company's quarterly SEC filing.
- The majority of U.S. employees offered voluntary buyouts will be FedEx Express and FedEx Services staff. Employees will be offered four weeks of pay for every year they have worked for the company.
Dive Insight:
Smith touted the third-party logistics provider's (3PL) record peak season to analysts, exclaiming that on the day before the call, Monday, 67% of packages were delivered ahead of schedule. But record deliveries now were overshadowed by less certain times ahead.
On top of declining margins and lowered profits projections, Smith cited years-long tech upgrade projects rendering some IT staff unnecessary as another reason for buyouts.
"We believe new productivity enhancing tools from accounting box, legal system analytics and predictive AI etc. will allow us to operate our company with fewer staff positions going forward," said Smith, who told analysts that technology is allowing for better margins on the FedEx ground delivery side of the business.
Pre-tax cost of the U.S.-based buyouts will total between $450 - $575 million depending on how many employees take the deal, according to the SEC filing. The company expects to save $225 - $275 million per year beginning in 2020 as a result.
The European buyouts are much more indicative of the state of the global economy than FedEx's U.S. rationale.
Economic "weakness," as executives called it, is not a forecast for the future but a description of the last quarter outside the U.S., said FedEx President and COO Dave Bronczek, pointing to Germany, Italy, France's recent unrest and Brexit in the U.K. as drags on the Euro zone.
Voluntary buyouts in Europe are largely the result of a shift in volumes toward freight and away from Express service in Europe, stressing revenue and margins, along with continued integration of 3PL TNT.
