Shares of FedEx (FDX) fell on Friday morning after the company said its president and chief operating officer had decided to retire. David Bronczek had been seen as a leading candidate to potentially succeed founder, Chairman and Chief Executive Officer Fred Smith.
BRONCZEK OUT, SUBRAMANIAM IN: On Thursday afternoon, FedEx announced that David Bronczek had decided to retire as president and COO. He will also step down from the board, just a few weeks after becoming a director. Bronczek, who was elevated to president and COO in 2016, oversees all day-to-day operations at the company and had been seen as a leading candidate to potentially succeed Fred Smith, FedEx's founder, chairman and CEO, though Smith has not indicated any desire to step aside. In a regulatory filing, the company said Bronczek's decision to retire "did not involve any disagreement with FedEx on any matter relating to the company’s operations, policies or practices." He has also agreed not to work for competitors, including UPS (UPS), DHL, the U.S. Postal Service or Amazon.com (AMZN) for a five-year period.
FedEx said in a statement that the change was the result of Bronczek’s "personal decision to retire." As a result, Raj Subramaniam will take over as president and COO on March 1. Subramaniam, has been with FedEx for more than 27 years and has held various executive level positions in several operating companies and international regions, will continue to serve as president and CEO of FedEx Express and will also serve as co-president and co-CEO of FedEx Services. According to The Wall Street Journal's Paul Ziobro, the appointment of Subramaniam to president and COO sets him up as the leading internal successor to Smith. "FedEx has a deep bench of talent, and I am confident that the transition will be seamless," Smith said.
WHAT'S NOTABLE: Bronczek's sudden retirement follows the recent departure of David Cunningham as head of FedEx Express in December. Cunningham was succeeded on January 1 by Subramaniam, who had been serving as executive vice president,Chief Marketing and Communication Officer. Shortly after Cunningham's resignation, FedEx cut its outlook and announced an employee buyout program. The company also said it would lower spending plans as it scaled back overseas to match softening demand.
ANALYST COMMENTARY: Bernstein analyst Dan Vernon said the COO and board change is "clearly abrupt," as Bronczek just took a board seat two weeks ago. He added that the expansion of responsibilities for Subramaniam, the recently appointed Express CEO "who has a lot on his plate," combined with the timing of the announcement make this look like an unplanned event. Seaport Global called the timing of the announcement "peculiar," and said he has "more questions and answers" regarding Bronczek's retirement. The firm thinks the stock is "dead money" until there is more clarity when the company reports its Q3 earnings in March.
PRICE ACTION: In morning trading, shares of FedEx are down 3% to $178.42.
