FedEx pledges to unlock 'value' with revamped board, new CEO. 3 takeaways from investor day

FedEx executives said Wednesday the company will become more efficient over the next five years, eliminate redundancies across its divisions and grow revenue.

The strategy, billed as "Deliver Today, Innovate for Tomorrow," came as the company hosted its first investor day with CEO Raj Subramaniam at the helm. The company said the new strategy would drive improved operating income and revenue over the next five years.

"We've built an unparalleled global network. And we are now focused on unlocking the value from the foundations," Subramaniam said during the company's investor day in Memphis.

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The new strategy, and accompanying financial projections, come as the company deals with inflation and pressure from D.E. Shaw, an activist hedge fund investor that has caused a shuffle on the company's board, according to the Wall Street Journal.

The company reported strong earnings last week, showing increases in revenue and operating income.

Here are three takeaways from FedEx's investor day in Memphis.

Plan is to eliminate overlap across operating companies

FedEx operating companies — particularly FedEx Ground and FedEx Express — have delivery networks that overlap.

The company's executives spent significant time on Wednesday detailing how the company would help the different operating companies work together and improve efficiency.

The company will use co-locations for different operating segments. It is describing the changes as Network 2.0. The optimization will cost $2 billion in one-time expenses.

"We're tackling this strategically across both geographies and products. For instance, at Express in the lower 48 states, we're evaluating our lowest density rural markets... and our end-of-day volume that's better served by [Ground CEO John Smith's] immense scale at Ground," FedEx Express CEO Richard Smith said. "This provides dual benefits  — one, it helps Express focus on service for priority our bread and butter, right; our raison d'etre, if you will. And second, it increases Ground's delivery density and asset utilization during their nonpeak months."

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Subramaniam faced a question from Brandon Oglenski, a transportation analyst at Barclays, about why the company wouldn't accelerate its plans to optimize the overlap between Ground and Express.

The new CEO said if the company could accelerate its plans, it would but, "We got to be really, really careful that we do this right... avoiding any disruptions."

Data can be 'clairvoyant'

FedEx executives are hinging part of the company's new strategy on technology.

Both Subramaniam and FedEx Chief Information Officer Robert Carter emphasized the focus FedEx is putting on artificial intelligence and machine-learning technology to become a more efficient company and execute the new strategy it unveiled this week.

"As you look at this future, leveraging our data and digital assets will be the engine that enables the value," Subramaniam said.

Carter said AI and machine learning were beginning to help the company understand its business and its historical business in ways that it had not been able to before and it could become almost "clairvoyant."

"In this data-driven world, maybe most importantly, using the power of AI and ML data begins to become clearer when the data actually begins to answer questions we never thought to ask. It begins to spot patterns that we never saw data from the past, present, its predictions, and its ability to spot patterns in the world are the optimization intersection," Carter said.

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Carter outlined how the company is continuing to transition toward cloud-based storage of its data and eliminating the remainder of its mainframe computer infrastructure network

Carter said the transition to cloud-based platforms could unlock $400 million in annual savings.

FedEx not expecting 'deep, prolonged recession'

Speculation has abounded in recent weeks about cooling global and domestic economic growth. The Federal Reserve has raised interest rates in an attempt to cool the U.S. economy and stymie rampant inflation.

FedEx's investor day included the company projecting that it could grow revenue at about 4% to 6% annually over the next five fiscal years.  The company's projections —and Subramaniam's answer to a question about how a recession could weigh on projections — revealed what the company thinks about economic growth.

"We are not assuming a deep, prolonged recession with these numbers. That's a different matter," Subramaniam said. "With reasonable economic scenarios — slow down to a mild recession — we can manage through it."

Samuel Hardiman covers Memphis city government, politics and FedEx for The Commercial Appeal. He can be reached by email at samuel.hardiman@commercialappeal.com or followed on Twitter at @samhardiman. 

This article originally appeared on Memphis Commercial Appeal: FedEx investor day: New corporate strategy, Raj Subramaniam at helm