(Reuters) - FedEx Corp (FDX.N) said on Tuesday it plans to sharply cut costs at its underperforming express air freight and services divisions, seeking to improve profits at those operations by $1.7 billion over the next four years.
The world’s second-largest package delivery company last month cut its 2013 profit forecast, blaming a growing shift by corporate customers to shipping goods by sea rather than air due in part to increases in jet fuel prices and in part to slowing economic growth.
“We intend to improve annual profitability substantially in our FedEx Express segment,” Chief Executive Fred Smith said, speaking at a dinner with investors and analysts in Memphis that was broadcast over the Internet.
He said the benefits of those efforts would start to show next year, adding that the profit improvements, which will be mainly due to cost cuts, should all come by the end of fiscal 2016, with a significant portion of that occurring the year before.
The total does not include expected profit gains at the company’s freight and ground divisions. Cost cuts had been flagged after its quarterly earnings last month and further details will be laid out at an all-day investor meeting.
Smith also told investors he intended to raise dividends in the years to come.
FedEx, which competes with larger rival United Parcel Service Inc (UPS.N), saw its profit in the first quarter for the 2013 year take a hit from the performance of FedEx’s express segment. The segment’s operating earnings fell 28 percent, with U.S. package deliveries were down 5 percent.
FedEx shares closed down about 1 percent at $85.58 on Tuesday. The share price ticked up to $86.60 in after-hours trading. The stock has gained about 2 percent this year, slightly ahead of UPS shares, which are flat. Both stocks, however, have lagged the wider S&P 500 index .SPX.
CEO Fred Smith founded FedEx in 1971 as an air shipper, but today the company also moves a large amount of goods by truck.
Additional writing by Phil Wahba and Sakthi Prasad; Editing by Edwina Gibbs