FedEx Corp. said on Friday it would pull $1.5 billion from a credit line and slash CEO pay as stay-at-home orders aimed at stemming the spread of the coronavirus in the United States and Europe hammer demand for its lucrative express services.
The Memphis-based delivery company said it would tap debt markets to bolster reserves as the pandemic slams its higher-profit business-to-business shipments, while driving up demand for low-margin home deliveries. Its board also approved a 91% reduction in Chief Executive Frederick Smith's base salary for six months starting April 1, according to a regulatory filing on Friday.
The global health crisis has compounded woes at FedEx, which already was struggling to integrate TNT Express, grappling with the high cost of launching Sunday home delivery, and compensating for the loss of Amazon.com Inc as a customer.
Shares in FedEx (FDX) fell 6.7% to $108.82 in midday trading.
FedEx and larger rival United Parcel Service have asked the U.S. Treasury to move quickly to release billions of dollars in government grants and loans to support the sector.
FedEx said it expects to benefit from excise tax relief and payroll tax referrals. It is also eligible for government grants, loans and investment programs.
It warned that participation in such programs could restrict FedEx's ability to pay dividends to shareholders and to buy back stock. It could also require the company to grant equity interests in FedEx to a government agency.
FedEx has responded to the business crisis by cutting spending, eliminating money-back delivery guarantees, and slapping temporary surcharges on all international package and air freight shipments.
The company's moneymaking air business has gotten a boost from the grounding of passenger aircraft - which carry half of total air cargo. But that may not continue, FedEx said.
"Due to weakening economic conditions in Europe and the United States and resulting decreases in demand for goods manufactured in Asia, there are no assurances that these increased levels of demand will be sustainable," FedEx said.
The company has $1.86 billion available under its existing credit agreements for future borrowings.
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