One on One with FedEx CEO Fred Smith
Thursday, September 25, 2008
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SUSIE GHARIB: More analysis now on that government bailout, a view from corporate America. A short while ago I talked with FedEx CEO Fred Smith. My first question to him: Will the rescue plan solve the underlying problems in the economy and the financial sector?
FREDERICK SMITH, , CHMN. & CEO, FEDEX: There is the industrial sector and there is the financial sector. And the real justification for these moves in Washington is to keep the problems in the financial sector from bleeding over into the larger industrial sector. And I suppose in terms of credit for cars and houses and appliances and so forth, that that will become a problem if they don't stabilize the financial markets one way or another.
GHARIB: Mr. Smith, I know we don't have any specifics on what this bailout will look like, but how do you think it would impact your business at FedEx?
SMITH: Well, my guess is directly, not too much, because, again, the financial sector and the industrial sector, while they meet in the middle, if you will, really have different rhythms, different market mechanisms. But the industrial sector or the good sector depends on credit for much of its activities. So overall, I think the problems in the financial sector will be reflected in a slowing business environment for all things, including the industrial sector in which we participate in the main.
GHARIB: We've been hearing from companies complaining about tight credit conditions. What is your experience? How tough are things these days?
SMITH: Well, we have a very strong balance sheet. We'll produce strong positive cash flow. We have in response to the slowing economic outlook reduced our capital budget from about $3 billion initially estimated for the fiscal year '09 that we are in now, to about.$2.6 billion. So we have no credit issues. Having said that, many of our customers rely on credit to either finance their inventories or to make credit available to their customers, or their customers require credit like automotive customers to buy automobiles. So there definitely is a slowing in the economy overall and I'm sure that in many ways it's related to the tightness of credit.
GHARIB: And there is a slowing also at FedEx, last week when your company reported quarterly earnings, a big drop in them and the company said it is going to raise prices in January, cut capital spending, as you just mentioned, and freeze hiring. What is weighing on your business?
SMITH: Well, while our earnings were down year-over-year, you also have to remember in the 12 months that went in between those reporting periods, we saw the fastest run-up in fuel prices in, I believe, the history of the world. Now having said that, we are very cautious about the rest of the fiscal year because of the slow economic conditions here, increasingly in Europe, and are you even seeing some of it in our very big Pacific operations, China and intra-Asia. Still growing but not nearly to the extent that it was a few months ago.
GHARIB: From what you are hearing from your customers, whether they are individual consumers or businesses big and small, when do you think the economy is going to turn around?
SMITH: It's anyone's guess, but I think a lot of this is going to have to wash through the economy before you will see any significant growth. And there has got to be some stabilization of energy prices, which is in many ways the proximate cause of a lot of the financial problems we have today.
GHARIB: Mr. Smith, thank you so much for your time, I hope next time we talk we will have more cheerier news to talk about.
SMITH: Thank you.
