FedEx Freight Will Lay Off 1,700 Employees

FedEx Corp. plans to combine its FedEx Freight and FedEx National LTL operations as of January 30, 2011, a move that will result in the layoff of approximately 1,700 full-time employees and the shuttering of roughly 100 facilities.

According to FedEx, this action will increase efficiencies and reduce operational costs, and is expected to substantially improve the profitability of the FedEx Freight segment in fiscal 2012. Although revenues for FedEx Freight for the most recent quarter were up 28% over a year ago (from $982 million to $1.26 billion), the segment reported an operating loss of $16 million, compared to operating income of $2 million a year ago.

The estimated cost of this program is $150 to $200 million, primarily related to charges that will be recorded in the second and third quarters of fiscal 2011. These charges will include severance costs associated with personnel reductions, lease terminations and certain non-cash charges. The net cash effect from the one-time cost of these actions is expected to be immaterial over time due to anticipated proceeds from asset sales.

The company also reported earnings of $1.20 per diluted share for the first quarter ended August 31, up 107% from $0.58 per diluted share a year ago. FedEx reported the following consolidated results for the first quarter:
● Revenue of $9.46 billion, up 18% from $8.01 billion the previous year
● Operating income of $628 million, up 99% from $315 million last year
● Operating margin of 6.6%, up from 3.9% the previous year
● Net income of $380 million, up 110% from $181 million a year ago.

Earnings increased as a result of strong FedEx International Priority (IP) growth at FedEx Express, continued growth at FedEx Ground and a benefit from the net impact of higher fuel surcharges, the company reports. The reinstatement of certain employee compensation programs, higher pension, medical and aircraft maintenance expenses, and an operating loss at FedEx Freight dampened the quarter's results.

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