FedEx to improve Memphis, Indianapolis hubs in wake of tax reform

FedEx Corp. will spend $1.5 billion over the next seven years to upgrade its Indianapolis hub operation, part of a $3.2 billion investment package that the company announced today in the wake of the recently signed federal tax reform bill.

The Indianapolis facility is the hub of FedEx Express, FedEx's air and international unit. The company did not provide details of the pending improvements.

FedEx also said it will expand and modernize its main global hub in Memphis, Tenn. Details of the program will be disclosed in the spring, the company said. The cost of the upgrades to the Memphis facility were not included in the package announced today.

In addition to the planned improvements at Indianapolis, FedEx said it will contribute $1.5 billion to its pension plan and will increase employee compensation by more than $200 million. Two-thirds of the additional compensation is earmarked for hourly employees, whose annual pay increases for 2018 will be advanced to April from October. (FedEx operates on a fiscal year that ends each May 31.) The remaining one-third will fund increases in performance-based incentive plans for salaried personnel, the Memphis-based company said. FedEx said it will not adjust its fiscal 2018 earnings or capital-expenditure guidance as a result of the actions.

The announcement is the biggest step yet by a transport or logistics company to capitalize on what many businesses view as favorable language in the tax law. The measure cut corporate tax rates to 21 percent from levels that had ranged from 15 percent to 35 percent. It allows all companies to fully deduct the cost of equipment purchases the first year that the asset is placed into service, through the so-called Section 179 expense deduction. The full depreciation benefit expires after five years. In addition, the bill nearly doubles the size of the Section 179 expense deduction, to $1 million. That provision was made permanent.

Frederick W. Smith, FedEx's founder, chairman, and CEO, strongly supports the new law. Earlier this month, Smith told Fox Business News that FedEx will "be doing a lot of things" as a result of tax reform, adding that the law will allow it "put more into the business with less risk."

An unscientific poll of 84 respondents taken at the SMC³ annual winter meeting in Atlanta found that 49 percent would use tax savings from the new law to reinvest into their businesses.