FedEx jolts Wall Street with surprise exit of Fred Smith deputy

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DALLAS (Feb 15): FedEx Corp threw Wall Street for a loop, announcing the resignation of Fred Smith’s top deputy just weeks, after he joined the company’s board.

Raj Subramaniam will take over as president and chief operating officer March 1, replacing David Bronczek, the shipping giant said in a statement Thursday. Bronczek, 64, made a “personal decision” to retire, the company said. He had been with FedEx since 1976, serving in several key executive roles.

The sudden departure — and a subdued sendoff from Smith — immediately made waves on Wall Street. Bronczek had just been named to the board Jan 28, a month after Subramaniam, 52, was promoted to lead FedEx Express, the company’s largest business unit. The latest change vaults Subramaniam to the front of the line as heir apparent to Smith, 74, as FedEx contends with a slowdown in international markets and a lagging stock price.

“Something must have surfaced in the last two weeks to bring about this change. There’s no other way it could happen,” said Satish Jindel, founder of SJ Consulting Group. “It just doesn’t seem normal. You don’t appoint someone to the board and then in two weeks you say he’s retiring.”

The shares fell 3.6% to US$177.30 at 9:34 a.m. Friday in New York. FedEx fell 24% over the 12 months through Thursday, compared with a 4.9% gain for rival United Parcel Service Inc.

Management Changes

Bronczek’s decision to retire did not involve any disagreement with FedEx on any matter relating to operations, policies or practices, the company said in a regulatory filing. He will leave Feb 28 under a deal that includes a five-year agreement not to work for FedEx competitors such as UPS, Deutsche Post AG’s DHL unit or Amazon.com Inc. FedEx will pay Bronczek US$2.5 million in cash by the end of March.

“We recognize Dave for his years of service to FedEx. FedEx has a deep bench of talent, and I am confident that the transition will be seamless,” Smith said in the statement. “Raj has significant experience in many areas of our portfolio, which will be vital as he steps into this position.”

Another longtime company veteran, David Cunningham, exited the company in December. Shortly after he resigned, FedEx startled analysts by cutting its outlook and announcing an employee buyout program. The company also said it would lower spending plans as it scaled back overseas to match softening demand.

Integration Troubles

That weakness was linked to difficulties FedEx had in Europe and the integration of TNT Express, a Dutch courier the company acquired in 2016 for US$4.8 billion. Both Bronczek and Cunningham were involved in meshing TNT’s operations with FedEx’s, a move that was disrupted by a cyberattack at TNT that caused it to lose customers.

“My sense is the integration is not going well,” said Kevin Sterling, a Seaport Global Holdings analyst. Europe has generally been weak for shipping companies recently, he said. “I think it’s been harder than they would have bargained for.”

Announcing two major executive shakeups since December caught investors by surprise, said Rick Paterson, an analyst with Loop Capital. FedEx has a reputation of steady management under Smith’s leadership, with executives accumulating decades of experience as they ascend the ranks.

Whirlwind Changes

“We’ve had some announcements come quickly, more than what we would expect from FedEx in the past,” Paterson said. “But when you look at them in isolation, they were logical.”

Subramaniam had a quarter-century experience at FedEx when he was promoted in December to lead the Express air-cargo unit. He previously served as chief marketing and communications officer and held several positions in the marketing area.

While Subramaniam has been participating in conference calls with analysts since 2017, he isn’t as well known as other executives in the company. He will have a full plate with his latest promotion. The company said he will continue to serve in his role as president and CEO of FedEx Express, as well as co-president and co-CEO of FedEx Services.

“Obviously, he’s got Fred’s confidence,” Paterson said. “Maybe he’s the heir apparent. Maybe that’s what we’re seeing.”