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FedEx: Great Shipper, Dumb Owner

It's official, folks. Kinko's is dead.

In a press release issued after close of trading yesterday, FedEx (NYSE: FDX  ) confirmed it will begin winding down the Kinko's brand this year, phasing out "FedEx Kinko's" in favor of a new name, "FedEx Office." The announcement tolls the bell on the nation's most famous name in copying -- and on FedEx's chance of earning a profit in the fourth quarter, as well.

Profits in peril
Four and a half years ago, FedEx printed out a $2.4 billion offer for Kinko's. Now we learn that management will write down more than one-third of that sum as the cost of killing the Kinko's brand. Fourth-quarter earnings that were previously estimated at $1.60 to $1.80 per share will be crippled by the resulting $2.22-per-share charge, pushing FedEx into the red this quarter and leaving it with less than $4 a share in profits by year’s end.

Reputation imperiled, too
Of course, that's just the short-term effect. Sure, it's embarrassing to have to admit FedEx overpaid for Kinko's by a third. But as a non-cash charge to earnings, killing the Kinko's brand won't do a lot of damage to FedEx's business per se. Or will it?

According to management, it's making the name change because calling the copy business "FedEx Office" will "better describe the wide range of services available ... and take full advantage of the FedEx brand."

Maybe yes, maybe no. I won't argue that FedEx isn't a great brand -- in shipping. But back when the companies first linked arms in 2000, FedEx called Kinko's "the most recognized brand name in the quick print industry." The history since has been a bit more equivocal.

FedEx bought Kinko's outright in 2003, but has struggled with it since. As FedEx's core transportation business steadily grew both revenue and profits, revenue at FedEx Kinko's flatlined, and profits dropped by half. At last report, the unit was earning a mere 2.2% operating margin. Hindered by this unit's poor performance, FedEx overall earns a lower margin than archrival UPS (NYSE: UPS  ) -- but that's nothing to be ashamed of. UPS is a great business, too.

The reason FedEx should hang its head in shame is that its copy business does worse than both superior businesses such as Staples (Nasdaq: SPLS  ) and Pitney Bowes (NYSE: PBI  ) , and industry laughingstocks like Office Depot (NYSE: ODP  ) and Office Max (NYSE: OMX  ) . Changing the name won't change that. Especially when changing the name entails killing a great brand.

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Staples and FedEx are Stock Advisor selections. UPS and Pitney Bowes have been recommended by Income Investor. Try either service free for 30 days.

Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (8)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 04, 2008, at 8:44 AM, elo8 wrote:

    I definitely think of Kinko's as the most recognized brand in copying, but if their profits are lagging behind those of their competitors, then it seems like FedEx may stand a better chance of positioning itself to remain competitive with UPS Stores with this branding adjustment.

    Dr. Tantillo ('the marketing doctor') argued that this is a really smart move, as the two brands stuck together was necessary for a time in order for the market to adjust to the association--but at this point, a more succinct name could be the right move, as it reflects what the (extended) brand has become.

    Anyway, here's a link to his take on it:

  • Report this Comment On June 13, 2009, at 7:59 PM, frontline1957 wrote:

    Was the flop between FedEx and Kinko's because of the way FedEx treated the employees of Kinko's? Let's hear from the Kinko's employees. Tell us how you were treated after the company was bought out by FedEx.

  • Report this Comment On September 18, 2009, at 6:53 AM, footchester wrote:

    Fedex now seems intent on killing off the stores themselves. Our former Kinkos, now a Fedex Office, has been open for more than a decade. It has always been a 24hr location, which made sense as it is located within walking distance of Warner Bros, NBC, Disney and 1 mile from Universal. I would go in there at midnight and the place was jumpin'.

    This summer, with no warning, they cut back to closing at 9pm! This isn't some farm town, its the headquarters of the movie / tv / music industry, and that biz operates at night. Just bought my first printer; after owning a half dozen notebooks.

    Kinkos execs should offer to buy the brand / stores back for a token $10M. It will make Kinkos customers extremely happy and turn the stores back into money makers. Fedex could go back to driving trucks and destroying anything fragile ever sent to me.

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