FedEx Expanding

This is a partial transcript from Your World with Neil Cavuto, December 30, 2003, that was edited for clarity.

Watch Your World w/Cavuto weekdays at 4 p.m. and 1 a.m. ET.

BRENDA BUTTNER, GUEST HOST: And kinky! Well, maybe that’s going a little too far, but you got to admit it is a bit unconventional.

Shipping giant FedEx is buying Kinko’s, the copy shop chain, for nearly $2.5 billion in cold cash. The deal will give FedEx a presence in 1200 Kinko’s locations worldwide.

FedEx CEO Frederick Smith says it’s all a very good fit.

And earlier I spoke with that CEO, Fred Smith, and asked why the new deal, which is quite a chunk of change, will be worth it.

(BEGIN VIDEOTAPE)

FREDERICK SMITH, FEDEX CEO (FDX): Kinko’s is a unique company. It has an unduplicated network, very unique products and services in its own right, and it’s a very good financial transaction.

We expect it to be accretive in FY05, and with our strong cash flows...

BUTTNER: That means, sir...

SMITH: ... pretty quickly.

BUTTNER: That means that you’re going to see some actual results a year from now.

And actually Wall Street isn’t really exactly welcoming that. They had thought that they might be seeing something a little bit earlier, which is why your stock is trading down?

SMITH: Well, I don’t know about that. The FY05 starts for us on the first of June, so that’s pretty quick.

BUTTNER: Do you expect to see any layoffs, sir?

SMITH: No. We do not.

BUTTNER: So you’ll be able to completely consume Kinko’s into your culture?

SMITH: We have a very good record of doing that with a number of acquisitions we’ve made over the years, and I don’t think that will be a problem for us.

BUTTNER: Sir, you basically move your packages with airlines, and of course they are very much the focus of attention now with the terrorist threats against the aircraft.

Heightened security measures for your aircraft? What are you seeing?

SMITH: Well, of course, we operate one of the biggest fleets of airplanes in the world, the largest all-cargo fleet.

We have very stringent security. We had it before 9/11. We’ve certainly stepped it up. Obviously, we’re all vulnerable to untoward events, but we work very hard at it.

BUTTNER: Are you doing anything special, given that we’re about to enter a very high-profile holiday?

SMITH: Well, we have very heightened security measures in place, but I should add that we have very, very good security capabilities, normally, as well. So we’re just taking it, perhaps, to a slightly higher level.

But it’s a big part of this business, providing security for our customers’ shipments, our employees and our equipment.

BUTTNER: Has that been cutting into your margins at all? It’s expensive to add the security, isn’t it, and you’re in a pretty low-margin business?

SMITH: Well, we have had a very extensive security capability for many years, because of the nature of the business we are in.

And so the incremental costs going one step up, was significant, but certainly not nearly to the extent, say, that the passenger airlines saw with the implementation of the improved screening and searching and things of that nature.

BUTTNER: UPS, your main rival, it still has the best share of business-to-consumer kind of business. Are you hoping to cut into that with Kinko’s?

SMITH: Well, the real lucrative segment in the Kinko’s acquisition in terms of the -- adding pack-and-ship capabilities at all our locations, is the small and medium-sized business shipper. Some of that is business to business; some of it is business to consumer.

But, over the last couple of years we’ve built a massive and highly successful home delivery component to our FedEx ground system, and that is becoming a much bigger presence in the markets you mentioned.

BUTTNER: I just wanted to ask you -- we have about 20 seconds -- your stock is up about 30 percent, year to date. Expect it to go much higher? That’s pretty strong for this year.

SMITH: Well, we’ve worked hard, and we intend to continue to deliver for our shareholders along the lines and guidance that we’ve given them.

BUTTNER: All right, sir, thank you so much for joining us. We appreciate it.

SMITH: Thank you, Brenda.

(END VIDEOTAPE)

BUTTNER: And that was FedEx’s chairman and CEO, Fred Smith.

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