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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