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The non-cash charge of $2.22 a share will be taken in the fiscal fourth quarter, which ended on May 31, FedEx said today in a statement. The cost, linked to use of the Kinko's name and goodwill from the unit's 2004 acquisition, will be $891 million before taxes, the Memphis, Tennessee-based company said.
The change follows FedEx's decision in December to slow expansion of the office-supply and copy unit to about 70 outlets in fiscal 2009 from 300 in 2008. FedEx Kinko's accounted for about $1.59 billion in sales, or 5.6 percent of FedEx's total, through the first nine months of the fiscal year.
``Kinko's is an acquisition they have struggled with in many ways since the beginning,'' said Donald Broughton, an Avondale Partners LLC analyst who has a ``buy'' rating on FedEx. ``They are very marketing savvy, so they will tweak the branding of their service offerings.''
By lowering the value of the purchase, FedEx will improve its reported return on equity, Broughton said in an interview. The non-cash charge also ``will not affect cash flows and should not change the stock price,'' he said.
FedEx acquired the chain to gain access to small shippers who pay higher prices, to make it easier for them to use FedEx and to compete with the UPS Stores of United Parcel Service Inc., the largest package-delivery company.
There are about 1,900 FedEx Office locations worldwide, up from 1,200 when FedEx bought Kinko's for $2.4 billion.
`Back Office'
``The name FedEx Office more accurately represents our broader role of providing superior information and services,'' Brian Philips, the unit's chief executive officer, said in the statement. ``We are a back office for small businesses and a branch office for medium to large businesses and mobile professionals.''
FedEx today also boosted its quarterly dividend to 11 cents a share from 10 cents, the first increase since February 2007. The dividend is payable July 1 to stockholders of record as of June 13.
FedEx fell $1.06 to $90.65 in New York Stock Exchange composite trading today. The shares have risen 1.7 percent this year.
The Kinko's purchase was too expensive, said Broughton, who is based in Nashville, Tennessee.
``It's not that it's not a nice addition to the product and it's not that t hasn't worked,'' Broughton said. ``It's that they paid $2.4 billion for 1,200 storefronts. Kinko's isn't worth $2 million a storefront.''
To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.netOriginal here
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