FedEx (NYSE:FDX) reported Q4 results. A big part of their story is fleet replacement. Old aircraft and engines are being retired. New more efficient gear is coming on board. OK makes sense. At the same time the company mentions labour costs are still high and pension costs are substantial. Part if the reasoning is low discount rates which balloon up unfunded pension obligations. Not really a new piece of news. Anyone with a pension plan knows this argument inside out. FedEx puts it out there again.
The question becomes have they maxed out on employee efficiency. A driver can only carry so many parcels and make so many deliveries in a day. If they are noticing employee costs to the point where they comment about it in disclosure there needs to be cause for concern. During the conference call the analysts did not really do a good job covering the point.
The analysts did attempt to discuss the whole issue of fleet replacement and upgrade. The lead off analyst from JPMorgan (NYSE:JPM) Tom Wadewitz attempted to ask about fleet reduction and what it means to utilization. Reasonable question under the circumstances. Frederick W. Smith – Chairman, President and CEO shuts him down with this comment: ” I think we’ll wait until the fall to talk about that because it’s a comprehensive program. I’m not sure we could do it just as here on a telephone call.”
Not really the best approach to Reg FD. The chairman is now on record dodging a major issue. Clarity, visibility, transparency are all fails. Surprising for a company like FedEx but here you go anyway.
FedEx created itself on the basis of air freighting everything. The fleet upgrade will have strategic impact over the next seven to ten years before the equipment starts an obsolescene decline and needs a new equipment cycle. Investors need to understand the aircraft strategy to understand FedEx.
George Gutowski writes from a caveat emptor perspective.