SAMANTHA BOMKAMP, AP Business Writer
NEW YORK (AP) — Investors are driving up shares of FedEx Corp. after the world's second-largest package delivery company lifted the veil on a much anticipated cost reduction and restructuring plan.
FedEx plans to add $1.7 billion to its annual profit by fiscal 2016 by cutting the number of employees and aircraft and trimming underused assets.
Founder and CEO Fred Smith said most of the cost cuts will come in the company's Express and Services units, which have been hurt the most by the slow global economy. A majority of the employees that are being asked to take buyouts are in the U.S.
"Because these buyouts are voluntary, the overall company is fine, they're just responding to weak economic conditions," says Dr. Douglas Campbell, Director of the Center for Economic Education at the University of Memphis. He says he does not expect the local impact of the buyouts in Memphis to be large.
FedEx has seen moderate, slow increases because of a slow U.S. recovery and weakening overseas economies, according to Douglas. FedEx wrapped up its investors meeting on Wednesday, where they discussed cost cutting and revamping the Express division by doing things such as reducing redundant processes, U.S. domestic transformation and modernizing its aircraft fleet.
"I did see cuts announced in fuel consumption and that's just a reflection of higher energy costs, and how FedEx appears to be wanting to achieve that is through more efficient aircraft," says Douglas.
Another toll the economy is taking on FedEx is less of a demand from consumers for high-end services.
"People are still sending stuff via FedEx but it's via the slower options. Not the overnight, next morning type stuff but 'We'll get it there in two or three days and that's fine,'" says Douglas.
FedEx was unavailable for on-camera comment on Wednesday and is not going into great detail about their plan.
Shares rose 3.2 percent, or $2.72, to $88.30 before the opening bell.
Larger rival UPS Inc. has also said it is cutting costs to adjust to global economic conditions.
FOX 13 Reporter Sarah Bleau contributed to this story.
Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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