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CNBC TRANSCRIPT: FRED SMITH, CHAIRMAN & CEO FEDEX, SPEAKS WITH LARRY KUDLOW TONIGHT ON CNBC

Steffanie Marchese
Friday, 18 Mar 2011 | 8:19 AM ET
Frederick Smith
Frederick Smith

When: Tonight, Thursday, March 17th

Where: CNBC’s "The Kudlow Report"

Following is the unofficial transcript of a CNBC interview with Fred Smith, Chairman & CEO FedEx, tonight on CNBC’s “The Kudlow Report” (M-F, 7-8pm ET).

All references must be sourced to CNBC.

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LARRY KUDLOW, host: Bullish signs for the US economic recovery this evening from the world's second largest package delivery company. FedEx shares jumped after the company reported a robust fourth quarter profit outlook. That was this morning. The company said the tragedy in Japan isn't likely to be significant overall to global trade. Adding that it has resumed inbound service to eastern Japan and stepped up radiation detection on all its cargo.

All right, let's get the real story. Joining us now for a CNBC exclusive is FedEx chairman and CEO Fred Smith. If there's a better businessman in this country, I don't know him. Fred, welcome back to the show.

Mr. FRED SMITH: Well, thank you, Larry, for that kind introduction.

KUDLOW: All right. It's my great pleasure. Now you raised your profit outlook for the quarter and the stock did great today, but if you wouldn't mind, I want to talk to you about Japan, which is obviously on everybody's mind. You're saying, through the announcement, Japan's tragedy is not lively--not likely to be, quote, "significant overall to global trade." And that, in fact, the issues are more localized than the entire country. Can you tell us about that view. You're in Tokyo. You're in Osaka. Tell us about your view.

Mr. SMITH: Well, we have a great management team in Asia Pacific in general, and in Japan as well. So I'm heavily guided by the information that they're giving us. But we resumed traffic into Japan really about 12 hours after the event, as I recall, and never ceased operations at Osaka. So there'll be some disruptions, no question, going into this horrific scene of devastation. And we're just so upset about this and feel for the Japanese people with this unbelievable loss. But commerce will continue and I think the effects of that--except for perhaps localized supply chain disruptions, high-tech and automotive in certain instances--I think it's a very resilient country and a very industrious people. I think you'll see the effect less than some of the folks thought initially.

KUDLOW: All right. Well, God bless. I hope you're right.

Now we were all very interested. You have on your board a former US Nuclear Regulatory Commission chair Sheila--Shirley Jackson, and I guess the guidance--this is from your reports today. She thinks or you think the Japanese crisis is, quote, "less rather than more." You know, Fred, that every--people around the world, stock market, ordinary American people are worried that the crisis is going to be more rather than less. What is the source of Ms. Jackson's optimism?

Mr. SMITH: Well, I certainly wouldn't presume to talk to--talk for Dr. Jackson, who was the head of the Nuclear Regulatory Commission and now is the president of Rensselaer, one of the great engineering schools in the country. But she detailed for our board the various things that would have to happen for this to move from a very significant event on a localized basis to something that's much greater. And I think that there has to be a great deal of optimism in large measure because of, as you just reported, the incredible heroism of these people working at these nuclear plants getting the water on these rods and trying to cool it down.

KUDLOW: So you believe that this is, in fact, a turning point, getting the power going, getting--I mean, they have dumped a hundred--100 million gallons on this thing. Now I guess the power is going. That'll make the cooling of the spent rods easier and avoid a real, real major, almost catastrophic radiation problem. Is that what you're thinking? Is that what Dr. Jackson is thinking?

Mr. SMITH: Well I, again, I can't speak for Dr. Jackson. I can only reiterate that it takes a lot of things to happen, like an air crash, to go wrong at the same time for it to turn into a really Chernobyl-like event. So let's keep our fingers crossed. I certainly don't want to downplay it. It could happen, as accidents do, but it certainly seems that they've made a lot of progress here.

KUDLOW: Fred, let's talk a little bit about services coming in and out of Tokyo and Osaka. Let me ask you about the radiation count for your people, your personnel and your packages. Are any metrics, any counts showing a high radiation?

Mr. SMITH: No. And, Larry, this is not something new for us. We have lots of security procedures and systems in place for lots of different contingencies, and radioactive monitoring is something that we've been doing for a long, long period of time. So we do not see anything in our operations at this point that would cause any alarm, and we'll redouble our efforts to make sure that's the case.

KUDLOW: Another key point in your announcement today, you're saying that there are more--FedEx is showing more Japanese imports incoming for reconstruction. Now I did not know that actual reconstruction had already started.

Mr. SMITH: Well, I think if that's what I said on the call, I'm--what I meant to say is there will be a lot of material that will be moved into Japan for reconstruction. At the moment, there is a lot of material being moved into Japan for humanitarian items and things of that nature, plus there's continuing trade for the rest of the Japanese economy. Don't forget, Japan is the third largest industrial economy in the world, or the second largest in general. I guess China has exceeded them, the number two place in general. But in terms of industry, Japan is number two. We're number one. So there's a lot of commerce that continues into Japan and out of Japan that wasn't affected by this horrific event up in the northeast.

KUDLOW: So just to clarify that, are we to deduce then from what you're saying that the rest of the Japanese economy--away from the Fukushima area, away from the northeast--is, in fact, functioning? Is that true?

Mr. SMITH: It certainly seems to us to be the case. I mean, our traffic continues into Japan and there continues to be exports from Japan. They're a major suppler to many, many industries and putting components out there. There are some bottlenecks, I suspect, for some plants that were directly affected, but there's a lot of industry in Japan. I mean, put it this way, if unfortunately we had a terrific tragedy in Arizona or Oregon, sort of on the periphery of the country, it would be horrible; but the rest of the United States in all probability would continue operating.

KUDLOW: All right. You are also pretty optimistic. Now FedEx is a bellwether of the United States and the world economy and you sounded pretty optimistic on the call this morning. Could you just give us a couple of additional bullets.

Mr. SMITH: Sure.

KUDLOW: We got about a minute and a half left. Do you think the American recovery, for example, is still on track?

Mr. SMITH: Well in terms of the US economy, our chief economist, Gene Huang, predicts 2.9 percent GDP industrial production at about 5 percent this year. That's very important to us in the transport sector. And our domestic volumes would certainly indicate that. In the international area, we are the largest air cargo, air express operation by a considerable margin. About 60 percent bigger than the next competitor. So we have a referendum going on every day, and our volume in terms of tonnage being moved is up about 15 percent year over year before the disaster in Japan.

KUDLOW: How about early March, Fred? Just the last few seconds here. Since this disaster started, early March, are the volumes still picking up? I got 20 seconds.

Mr. SMITH: Well, the volumes are continuing strong year over year, would be the correct way to do it--to say it, Larry.

KUDLOW: Wow. All right. Fred Smith, distinguished chief executive officer of FedEx, the bearer of good news. Fred Smith, thank you ever so much for coming on...

Mr. SMITH: Thank you.

KUDLOW: ...and giving us your insights.

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