Losses on Kinko's puts FedEx in red ink
FedEx is reporting more than $800 million in losses for the most recent quarter due to slow manufacturing and gas prices. But the acquisition of Kinko's may also have something to do with it. Joel Rose reports.
A FedEx delivery truck leaves a FedEx facility in Los Angeles, Calif. (David McNew/Getty Images)
More on America's Financial Crisis
TEXT OF STORY
Kai Ryssdal: One thing a lot of people do when they want to get a handle on how the economy's going is to look at the big package delivery services. That'd be UPS and FedEx mostly. And the economic snapshot that FedEx gave us this morning was anything but promising. The company lost more than $800 million in its most recent quarter. Officials blamed the results on high fuel prices and slumping demand. But confirming once again that timing really is everything, Joel Rose reports the company's purchase of Kinko's five years ago didn't help much either.
JOEL ROSE: FedEx says revenues were off 20 percent compared with the same quarter a year ago. On a conference call with reporters, company officials said the recession means fewer people are using its FedEx Express and freight services. But CEO Frederick Smith says there is light at the end of the tunnel.
FREDERICK SMITH: While the severe global recession continues to throttle somewhat FeEx's growth, we do see signs of stability as the rate of decline appears to have leveled off. We believe the worst of the recession is likely behind us.
But the recession accounts for only some of FedEx's problems. The company's fourth-quarter results included more than a billion in write-downs, mostly on its investment in Kinko's. In other words, FedEx is admitting it paid too much for the office services chain it bought five years ago for $2.4 billion.
DAVID Ross: They just paid a lot of money to buy Kinko's. Even several years ago, it didn't look like a good deal. It looked like they overpaid for it.
Stifel Nicholas analyst David Ross says FedEx misjudged how quickly the Internet and cheaper home office equipment would reduce the demand for brick-and-mortar copy stores. Ross says FedEx managers probably felt like they had to compete with UPS and its chain of stores.
Ross: Kinko's was the only thing they could buy. At the time, things were going well. So they didn't mind paying a little too much.
Or a lot too much. FedEx has now written down 70 percent of the price it paid for Kinko's.
I'm Joel Rose, for Marketplace.
Comments
Comment | Refresh
06/18/2009
OMG!
$800 Billion? FedEx lost the bailout package? Anyone bought insurance?
I think you meant $800 Million.
"The Memphis-based package delivery giant reported a fiscal fourth quarter loss of $876 million, or $2.82 per share, compared with a loss of $241 million, or 78 cents per share, in the year-ago period. Excluding one-time charges of $1.2 billion, however, the company posted an adjusted profit of 64 cents per share."
From Newtown, CT, 06/18/2009
I think FedEx missed the fact that UPS stores are geared toward the fairly small business and consumers where Fedex Office (the place formally known as Kinkos) is geared for projects that a medium to large sized company will undertake. Add that to the fact that Kinkos shops tend to be near office parks as opposed to a strip mall nearer consumers.
I like the FedEx pricing for printing large scale projects and use them when I want to make sure that my documents look professional. But for copies? I burn more in gas to get to one then using my HP; just like is mentioned in the story.
Post a Comment: Please be civil, brief and relevant.
Email addresses are never displayed, but they are required to confirm your comments. All comments are moderated. Marketplace reserves the right to edit any comments on this site and to read them on the air if they are extra-interesting. Please read the Comment Guidelines before posting.
You must be 13 or over to submit information to American Public Media. The information entered into this form will not be used to send unsolicited email and will not be sold to a third party. For more information see Terms and Conditions and Privacy Policy.