What is going on with FedEx?
My friend who works at a FedEx office just called me to give me the bad news. Many employees at FedEx will be taking paycuts along with a freeze on raises for at least one year. Fred Smith, the CEO, is taking a 20% cut, the people immediately below him are taking smaller pay cuts, and the lowest salaried employees are taking 5% pay cuts. My friend is the highest level non salaried employee so fortunately she won't be taking a pay cut but will not get a raise this year. Also, her company match in her 401k along with all other FedEx employees is being terminated for at least a year. All of this will go along with a large scale hiring freeze.
FedEx, like many businesses today is having a very difficult time projecting what their profits for 2009 will look like. It looks like at the bottom of their range of projections would be a 50% drop in profits from the trailing year. These pay cuts are estimated to save FedEx possibly a billion dollars over the next year. If that is the case, FedEx's profits should stay level if their darkest projections become reality. And with DHL no longer operating in the USA, you would think that FedEx would see at least some boost in market share.
To me, this looks like Fred Smith is taking aggressive actions to protect the stock price. He was worth about two billion a year ago and is worth a little over a billion today. I'm sure he is not interested in being worth only 500 million a year from now if FedEx's profits fall off a cliff. This must be tough for him because up until recently, FedEx had been a stock market darling. The PE of the company is at 19 right now so it has room to fall if profits dry up.
What are your thoughts?