Losses on Kinko's puts FedEx in red ink

A FedEx delivery truck leaves a FedEx facility in Los Angeles, Calif.

TEXT OF STORY

Kai Ryssdal: One thing a lot of people do when they want to get a handle on how the economy's going is to look at the big package delivery services. That'd be UPS and FedEx mostly. And the economic snapshot that FedEx gave us this morning was anything but promising. The company lost more than $800 million in its most recent quarter. Officials blamed the results on high fuel prices and slumping demand. But confirming once again that timing really is everything, Joel Rose reports the company's purchase of Kinko's five years ago didn't help much either.


JOEL ROSE: FedEx says revenues were off 20 percent compared with the same quarter a year ago. On a conference call with reporters, company officials said the recession means fewer people are using its FedEx Express and freight services. But CEO Frederick Smith says there is light at the end of the tunnel.

FREDERICK SMITH: While the severe global recession continues to throttle somewhat FeEx's growth, we do see signs of stability as the rate of decline appears to have leveled off. We believe the worst of the recession is likely behind us.

But the recession accounts for only some of FedEx's problems. The company's fourth-quarter results included more than a billion in write-downs, mostly on its investment in Kinko's. In other words, FedEx is admitting it paid too much for the office services chain it bought five years ago for $2.4 billion.

DAVID Ross: They just paid a lot of money to buy Kinko's. Even several years ago, it didn't look like a good deal. It looked like they overpaid for it.

Stifel Nicholas analyst David Ross says FedEx misjudged how quickly the Internet and cheaper home office equipment would reduce the demand for brick-and-mortar copy stores. Ross says FedEx managers probably felt like they had to compete with UPS and its chain of stores.

Ross: Kinko's was the only thing they could buy. At the time, things were going well. So they didn't mind paying a little too much.

Or a lot too much. FedEx has now written down 70 percent of the price it paid for Kinko's.

I'm Joel Rose, for Marketplace.

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