Fedex CFO winds down career
Recalls decades of pioneering moves
Graf Jr.’s most important financial decision is still paying off for Fedex today.
In 1997, Fedex acquired Caliber System Inc. for $2.4 billion under Graf’s watch as chief financial officer. The deal created Fedex Corp., with Federal Express, small-package ground company RPS and less-than-truckload carrier Viking Freight among the companies under its wing.
“It was becoming obvious to us there was a growing need — which you can see today in a big way — for slower, less expensive solutions other than flying across the country and getting it delivered absolutely, positively overnight,” Graf said of the decision in an interview with The Commercial Appeal, using the famous company tagline.
The acquisition opened the door for Fedex Ground to become the major home delivery courier it is now, facing unprecedented demand amid the COVID-19 pandemic. It’s an essential chapter for both Fedex and Graf’s 40-year career at the company, much of it spent leading its financial functions.
On Sept. 22, Fedex corporate Vice President and Treasurer Mike Lenz will succeed Graf as CFO. Graf, 66, is staying on until the end of the year as an executive vice president and senior adviser.
“In his 40 years at Fedex, Alan has helped build and transform this company,” Chairman and CEO Fred Smith said in a statement when Graf’s retirement was announced.
Graf becomes CFO after Smith ‘took a chance’
Graf joined Fedex in 1980 as a senior financial analyst, wanting to be part of a smaller company growing quick.
“The scene was generally, ‘Go fast,’” Graf said. “We’ve been going fast ever since. The culture is very much the same. It’s an aggressive organization with people who want to win and to do it the right way.”
He remembers Fedex moving some 35,000 packages his first day on the job. Fedex is, of course, much bigger now. In the company’s most recent quarter, Fedex Express and Fedex Ground saw a combined average of 16.5 million packages daily.
Graf held multiple management positions in finance before becoming vice president and treasurer of Fedex Express in 1987. In 1991, he was promoted to senior vice president and CFO of Fedex Express.
Graf said he “probably would not have been as successful” if not for Smith’s mentorship. Smith recommended to Fedex’s board of directors that Graf become CFO, despite other candidates that included CFOS at large companies.
“He had a hunch, and he took a chance on a 38-year-old treasurer who had been good at raising money and good on Wall Street,” Graf said.
Smith told Graf he would have pressure to deliver short-term results but should remember the long-term results are more important. Graf became executive vice president and CFO at the newly formed Fedex Corp. in 1998, following a pricey acquisition that transformed the company.
Fedex made the call to acquire Caliber Systems after realizing the price tag to create its own ground transportation network would be too high, Graf said. The deal included Caliber Systems’ RPS, the company that became Fedex Ground.
“It was going to be too expensive and, quite frankly, it was not in our DNA,” Graf said. “So, the acquisition of RPS was instrumental in building our ground network into what it is today.”
Fedex prepared to weather ‘COVID-19 storm’
Fedex Ground volumes, already growing before COVID-19, have skyrocketed since the pandemic as more people stay at home and order online. Fedex is well ahead of where Graf thought it would be in terms of volume, and he expects the surge is here to stay.
With the pandemic, Fedex “had to prepare for the worst and hope for something better,” Graf said. In April, Fedex disclosed it drew down its line of credit by $1.5 billion to preserve financial flexibility.
“Liquidity became the No. 1 thing,” Graf said. “We wanted to make sure we had the financial resources to withstand whatever COVID-19 storm there was.”
Smith, meanwhile, directed Fedex to institute employee safety measures and keep supply chains moving, Graf said. The company saw a $125 million charge for COVID-19 safety measures in its most recent quarter. Recent shipping surcharges instituted by Fedex have helped cover the additional costs, he added.
Graf landed a $575,000 bonus in July for “outstanding leadership during the COVID-19 pandemic,” according to Fedex’s annual financial report. The company said in a statement his role in solidifying its financial stability during the pandemic “ranks among his greatest achievements in his decades of finanalan cial leadership at Fedex.”
“I was fortunate enough to build very strong teams who were terrific, and even to this day, the things we’re accomplishing throughout the company and the finance organization are all on a team basis,” he said.
Graf not sweating Amazon’s rise
Fedex’s global shipping network has cost billions to create and maintain, but it’s one of the reasons Graf doesn’t fret about Amazon as a challenger to Fedex. The e-commerce giant doesn’t have the arsenal of shipping hubs, pickup operations and fast global delivery ability of Fedex, he said.
“They’re a merchandiser at the end of the day,” Graf said of Amazon.
“They lose a significant amount of money on logistics and delivery operations — our shareholders don’t want us to lose money. They want us to make a return.”
Amazon saw $13.8 billion in fulfillment costs in its most recently reported quarter, up from $9.3 billion the yearbefore quarter.
Fedex’s shipping network comes at a high price tag, but it’s “not duplicable,” Graf said.
“One of the things I get criticized about on Wall Street is our capital intensity, but our capital intensity is what allows us to do what we’re doing today with our unbelievable networks,” he said.
Fedex ended its two major Amazon shipping contracts to focus on other companies selling goods online.
The company is moving “an awful lot of ” Walmart and Target packages in its network, Graf said.
Another competitor of Fedex, the U.S. Postal Service, remains in financial trouble.
The agency, which is also Express’ largest customer, has been under a national microscope after major opera
tional changes made months before the November election. Well before 2020, Smith has been vocal about the ailments of the Postal Service.
Graf said he can’t see how the Postal Service can survive financially making stops at 155 million addresses, six days a week, as mail volumes decline.
“We just don’t see how they can continue with that,” Graf said. “Postmaster General (Louis) Dejoy is a very successful businessman, we’ve known him for a long time, and he’s done a great job with the companies he’s had. I think he sees the challenges. There needs to be reform, but I don’t know what that will entail.”
Graf ‘still committed to Memphis’
Graf said his successor is a worthy one. Lenz has been devising the company’s financial liquidity plans during “a very tough time to be treasurer,” Graf said.
“He’s great with rating agencies, and everyone knows him on Wall Street,” Graf said of Lenz. “The best thing for Mike is that his leadership skills will help him a lot.”
Graf plans to spend much of his retirement in Florida, but he added he is “still committed to Memphis.”
He’ll remain busy as a member of both Nike and Mid-america Apartment Communities’ boards of directors, along with being a member of the University of Memphis Board of Trustees.
“I certainly enjoyed leading the finance organization, but it is an unbelievable organization of talented people, all of which know more about their individual subjects than I do,” Graf said.
“It makes me much more effective as a CFO than I otherwise would have been. It’s just a great team.”
Max Garland covers Fedex, logistics and health care for The Commercial Appeal. Reach him at max.garland@commercialappeal.com or 901-529-2651 and on Twitter @Maxgarlandtypes.