With shares of FedEx sitting at the same level as five years ago, executives have been looking for new ways to “deliver” value. 🤔
One of those ways is by changing the operating structure that founder Fred Smith loved but investors and analysts criticized. 📋
The change was initially suggested by activist investor D.E. Shaw who won two additional board seats last year. Now, that vision is coming true. Executives announced today that they’re integrating FedEx Ground (outsourced package delivery) with FedEx Express (overnight air delivery).
FedEx Chief Executive Raj Subramaniam said the change will help the company trim down its infrastructure and cost base. Like its competitors, a demand slowdown has hit FedEx at the same time as costs have risen significantly. And while the company has been able to raise prices, it’s not been enough to offset the decline in global shipping volumes. 📦
Under the new structure, FedEx will use a “hybrid” employee and contractor model for deliveries, continuing its non-union approach. Additionally, FedEx Freight will continue operating as a standalone company under the Federal Express Corp banner. 🛫
The shift is part of FedEx’s plan to cut $4 billion in permanent costs by the end of the fiscal year 2025. It hopes to become more competitive with rival UPS, which has always used this operating model.
In addition to the cost-saving announcement, the company increased its dividend by 10% as it looks to entice shareholders further. 💰
$FDX shares initially rose by 4% but closed up about 1.5%. 📈