Q3 2025 FedEx Corp Earnings Call

March 20, 2025

Speaker: This makes shift shorter.

Please signal a conference specialist by pressing the star key followed by zero.

Rajesh Subramaniam: Second, weakness in global trade continues to constrain demand in our international business, which has remained challenged for longer than expected. As such, we're continuing to proactively realign our air network to match capacity to demand.

Second weakness in global trade continues to constrained demand in our international business, which has remained challenge for longer than expected.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two please.

As such we're continuing to proactively realign our air network to match capacity to demand.

Please note this event is being recorded.

Speaker Change: I would now like to turn the conference over to Jenny Hollander, Vice President of Investor Relations. Please go ahead.

Rajesh Subramaniam: And third, this quarter, Express experienced over $200 million of inflationary pressure on a year-over-year basis. We offset this with benefits from drive, as well as responsible headcount management. The dynamics I just outlined create significant opportunities for us to improve our network utilization.

And third this quarter.

<unk> experienced over $200 million of inflationary pressure on a year over year basis.

Jenny Hollander: Good afternoon, and welcome to Fedex Corporation's third quarter earnings Conference call.

We offset this with benefits from drive as well as responsible headcount management.

Jenny Hollander: Third quarter earnings release Form 10-Q, and Stat book are on our website at investors thought that ask dot com. This call and the accompanying slides are being streamed from our website, where the replay and slides will be available for about one year.

The dynamics I, just outlined create significant opportunities for us to improve our network utilization.

Rajesh Subramaniam: Last quarter, we introduced our tricolor strategy. Ultimately, this network design will enable us to improve the efficiency and asset utilization of the entire FedEx system. put the right product in the right network, taking advantage of our continental surface networks in Europe and our market leading FedEx Freight LTL network in the United and profitably penetrate new market segments at the right cost structure, including the premium air freight market. As we move forward, we are managing the execution of Tricolor with the rigor and discipline of drive, and this will be a key element to our success.

Last quarter, we introduced our tricolor strategy.

Jenny Hollander: During our Q&A session callers will be limited to one question to allow us to accommodate all those who would like to participate.

Ultimately this network design will enable us to improve the efficiency and asset utilization of the entire Fedex system.

Jenny Hollander: Certain statements in this conference call maybe considered forward looking statements as defined in the private Securities Litigation Reform Act of 1995.

Put the right product in the right network, taking advantage of our continental surface networks in Europe.

Such forward looking statements are subject to risks uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward looking statements.

And our market, leading Fedex freight LPL network in the United States.

And profitably penetrate new market segments at the right cost structure, including the premium airfreight market.

Jenny Hollander: For additional information on these factors please refer to our press releases and filings with the SEC.

Jenny Hollander: Today's presentation also includes certain non-GAAP financial measures. Please refer to the Investor relations portion of our website at Fedex Dot Com for a reconciliation of the non-GAAP financial measures discussed on this call to the most directly comparable GAAP measures.

As we move forward, we are managing the execution of Tri color with the rigor and discipline of drive and this will be a key element to our success.

Rajesh Subramaniam: Moving to another area of opportunity. In Europe, we continue to improve our service levels and focus on commercial execution. However, the B2B environment remains challenging. And in this context, we are making progress on drive on track to generate $600 million of savings in fiscal year 25 and seeking further profit optimization opportunities. As we have mentioned in previous calls, we are also experiencing a continued headwind for the United States Postal Service, which has reduced volume. Despite this volume and revenue drawdown, our service obligations to the USPS remain fixed. Express and across the business drive remains a key enabler of improved profitability both in the near and the long term, as we change the way we work and identify areas for structural cost reduction.

Moving to another area of opportunity.

Raj Subramaniam: Joining us on the call today are Raj Subramaniam, President and CEO re Crary executive Vice President and Chief customer Officer, and John <unk> Executive Vice President and CFO now I will turn the call over to Raj.

In Europe, we continue to improve our service levels and focus on commercial execution.

However, the <unk> environment remains challenged.

And in this context, we are making progress on drive on track to generate $600 million of savings in fiscal year, 'twenty, five and seeking further profit optimization opportunities.

Raj Subramaniam: Thank you Jenny and welcome to your first earnings call at Fedex, We are happy to have you onboard leading the investor relations team.

Speaker Change: Before we discuss the quarter I would like to congratulate Rob Carter on his upcoming retirement.

As we have mentioned in previous calls we are also experiencing a continued headwind for the United States Postal service, which has reduced volume.

Raj Subramaniam: Which we announced last week.

Raj Subramaniam: He has served as CIO for the last 24 years, leading Fedex and modernizing our it infrastructure.

Despite this volume and revenue drawdown, our service obligations to the USPS remain fixed.

Raj Subramaniam: Mentally grateful to Rob for his numerous contributions and establishing Fedex.

Raj Subramaniam: <unk> data driven and a people focused company.

At express and across the business drive remains a key enabler of improved profitability, both in the near and the long term.

Speaker Change: We thank him for his dedication and service to Fedex over the years and wish him well in his upcoming retirement.

As we change the way, we work and identify areas for structural cost reduction.

Speaker Change: Thank you also to the Fedex team for their exceptional work in Q3 by providing superior service for customers and delivering strong results.

Rajesh Subramaniam: In Q3, we delivered $550 million of benefits from DRIVE, offsetting the impact of revenue declines and cost pressure. I am encouraged by the progress across all three categories. This includes $290 million in our surface network, $110 million of savings in air network and international operations, and $150 million of GNA. Given the progress we have made year to date, we will deliver on our goal of 1.8 billion dollars in permanent cost reduction benefits from DRIVE this fiscal year and are highly confident in the additional 2.2 billion dollars in fiscal year 25. The work we are doing with DRIVE is also helping advance planning for Network 2.0.

In Q3, we delivered $550 million of benefits from drive.

Offsetting the impact of revenue declines and cost structures.

Speaker Change: All while advancing our transformation initiatives.

I am encouraged by the progress across all three categories.

Speaker Change: For the third consecutive quarter, we delivered operating income growth and margin expansion in a declining revenue environment.

This includes $290 million and our surplus network.

$110 million of savings in Air network and the international operations.

Speaker Change: This is a very positive dynamic.

And $150 million of G&A.

And the unique one in our industry.

Speaker Change: It demonstrates clear progress on our transformation and our ability to manage what's within our control through drive.

Given the progress we have made year to date.

We will deliver on our goal of $1 8 billion.

Speaker Change: We're strengthening our value proposition, improving the customer experience and increasing profitability.

And permanent cost reduction benefits from drive this fiscal year.

And are highly confident on the additional $2 2 billion in fiscal year 'twenty five.

Speaker Change: This progress supports our long term goals.

Speaker Change: Stable margin expansion improvements in ROIC and value creation for our stockholders.

The work we are doing with drive is also helping advance planning for network through <unk>.

Rajesh Subramaniam: This quarter, we rolled out our new surface operations leadership structure. Under this new structure, leaders and their teams would be responsible for all express and ground package operations and facilities in their respective divisions, regions, and districts. This will enhance operational execution and offer greater insights into the package business overall with accountability at all levels. More broadly, we have now implemented Network 2.0 in over 50 locations. with dozens more to follow in calendar 2024, all while maintaining outstanding service.

This quarter, we rolled out our new surface operations leadership structure.

Speaker Change: Now turning to the details.

Speaker Change: Our transformation is driving continued improvements in adjusted operating income margins and earnings per share.

Under this new structure leaders and their teams will be responsible for all express and ground package operations and facilities and their respective divisions regions and districts.

Speaker Change: At the enterprise level, we delivered a 16% improvement in adjusted operating income.

This will enhance operational execution and offer greater insights into the packaged business overall with accountability at all levels.

Speaker Change: Adjusted margin expansion of 90 basis points compared to the prior year.

Speaker Change: Even as revenue declined 2%.

More broadly we have now implemented network through <unk> and over 50 locations with dozens more to follow in calendar 2024, all while maintaining outstanding service.

Speaker Change: Adjusted operating income growth was driven by continued strength of ground and improvement at express.

Speaker Change: For the segment level I'm, particularly pleased with the results of ground where.

Rajesh Subramaniam: And as a reminder, we will begin the rollout of Canada in April and expect to complete this transition by October of 2024.

Speaker Change: While our adjusted operating income increased 14% on 1% of revenue growth.

And as a reminder, we will begin the rollout of Canada in April and expect to complete this transition by October of 2024.

Speaker Change: And adjusted operating margin improved to over 11% in the quarter.

Rajesh Subramaniam: And as part of our transformation, we are on track to complete the consolidation of FedEx operating companies into one streamlined and simplified organization. creating efficiencies as we build a stronger, more profitable enterprise.

And as part of our transformation, we are on track to complete the consolidation of Fedex operating companies into one streamlined and simplified organization.

Speaker Change: This reflects continued progress controlling expenses and effective yield management, including the ramping benefits from drive.

Creating efficiencies as we build a stronger more profitable enterprise.

Speaker Change: At freight the team's continued focus on profitable growth and cost management delivered strong margins and mitigated year over year volume challenges.

Rajesh Subramaniam: In June 2024, FedEx Express, FedEx Ground, and FedEx Services will consolidate into Federal Express Corporation. The work we're doing to create a more flexible, efficient and intelligent network is translating into direct improvements in our customer offering and profitability. When severe weather hits, it can cause a domino effect of delays and reduce service levels across our network. While we have always used data analytics to assess the effect of weather events, our new weather contingency playbook, developed by our planning, engineering and data works teams, enhances the process by leveraging predictive capabilities to proactively divert storm bound volumes across our network.

In June 2020 for Fedex Express Fedex ground, and Fedex services will consolidate into federal Express operation.

Service levels remain exceptionally high demonstrating our differentiated execution capabilities.

The work we are doing to create a more flexible efficient and intelligent network is translating into direct improvements in our customer offering and profitability.

Speaker Change: We're also making progress at express where adjusted operating income increased enabled by our ability to remove structural costs.

When severe weather hits it can cost a domino effect of delays and reduced service levels across our network.

Speaker Change: Yes.

Speaker Change: Looking ahead, we are reaffirming the midpoint of our fiscal 'twenty four adjusted EPS range, while narrowing the range to $17 25.

While we have always used data analytics to assess the effect of weather events or new weather contingency playbook developed by our planning engineering and data works teams enhances the process by leveraging predictive capabilities to pro actively divert.

Speaker Change: To $18 and 25.

Speaker Change: In fact, we now expect to deliver adjusted earnings above the midpoint of the range. We shared last June this.

Speaker Change: <unk>.

Speaker Change: Full year revenue expectations that have deteriorated significantly over the past nine months.

<unk> bond volumes across our networks.

Rajesh Subramaniam: By combining the power of digital insights and predictive analytics with our physical network, we effectively mitigated the impact of the January winter storms that hit our express hub in Memphis by shifting Memphis-bound express volume to ground or freight at the origin location. Despite this year's event having a longer impact to Memphis operations when compared to the weather event in February 2023, our network recovery was twice as fast.

By combining the power of digital insights and predictive analytics with our physical network.

Speaker Change: This is clear evidence of our ability to execute.

Effectively mitigated the impact of the January winter storm that hit our express hub in Memphis by shifting Memphis bound express volume to ground, our freight of the origin location.

Speaker Change: Turning to the express business.

Speaker Change: It is my top priority to continue to make the changes necessary to align our air network with an evolving demand environment and unlock the full profit opportunities.

Despite this year's event, having a longer impact to Memphis operations, when compared to the weather event in February 2023.

Speaker Change: While we have made progress at express this quarter.

Our network Macquarie was twice as fast.

Speaker Change: Several areas, we are aggressively working to address in order to accelerate profit improvement.

Rajesh Subramaniam: This quarter, we also announced a significant initiative, FDX, the fully integrated data-driven commerce platform that connects the entire customer journey from demand to return. It'll provide real time visibility to our help our customers optimize and grow their business, leveraging our analytical capabilities and data from the 15 million packages we deliver every day.

This quarter, we also announced a significant initiative mdx.

Speaker Change: Service mix.

Speaker Change: Network utilization continued inflation and other cost headwinds.

Fully integrated data driven commerce platform that connects to entire customer journey from demand to returns it.

Speaker Change: First with respect to service mix, we are seeing a clear international market shift towards deferred services.

It will provide real time visibility to our help our customers optimize and grow their business leveraging our analytical capabilities and data from the 15 million packages, we deliver every day.

Speaker Change: This is tied in part to the rapid growth of many of our e-commerce customers.

Speaker Change: We are a critical enabler of global trade offering unique solutions for our customers.

Rajesh Subramaniam: I'm excited to have Sriram Krishnaswamy serving as Chief Digital and Information Officer effective July the 1st. His proven track record of driving optimization and innovation for our business through data and in- combined with this deep knowledge of the network will be critical to moving FedEx forward as we become a data-driven, digital-first company.

Speaker Change: I'm excited to have Sriram, Chris Asami, serving as chief digital and information Officer effective July the first.

Speaker Change: More on how we are addressing this mixed shift shorter.

Second.

Speaker Change: His proven track record of driving optimization and innovation for our business through data and insights combined with his deep knowledge of the network will be critical to moving Fedex forward as we become a data driven digital first company.

Speaker Change: Weakness in global trade continues to constrained demand in our international business, which has remained challenge for longer than expected.

Speaker Change: As such we're continuing to proactively realign our air network to match capacity to demand.

Rajesh Subramaniam: As I look across the business and these financial results, there are clear signs of progress on our transformation. Our strategy is generating results, and we are well-placed to maintain our leadership position while delivering improving financial outcomes. Together, we remain focused and committed to our long-term goals, supporting the creation of significant long-term value for our stockholders.

Speaker Change: As I look across the business and these financial results there are clear signs of progress on our transformation.

Speaker Change: And third this quarter.

Speaker Change: Express experienced over $200 million of inflationary pressure on a year over year basis.

Speaker Change: Our strategy is generating results and we are well placed to maintain our leadership position, while delivering improving financial outcome.

Speaker Change: We offset this with benefits from drive as well as responsible headcount management.

Speaker Change: Together, we remain focused and committed to our long term goals supporting the creation of significant long term value for our stockholders.

Speaker Change: The dynamics I, just outlined creates significant opportunities for us to improve our network utilization.

Speaker Change: Last quarter, we introduced our tricolor strategy.

Speaker: With that, let me turn the call over to Brie. Thank you, Raj, and good afternoon, everyone.

Bruce: With that let me turn the call over to Bruce.

Speaker Change: Ultimately this network design will enable us to improve the efficiency and asset utilization of the entire Fedex system.

Bruce: Thank you Raj and good afternoon, everyone.

Brie Carere: First, I want to thank our FedEx team for strong performance during the peak season. As a result of their hard work and commitment, we once again delivered the best service offering in the industry. We continue to execute on our commercial priorities with a focus on revenue quality while maintaining our industry-leading service. As a result, we took profitable share in the quarter at market rates, and we continue to retain the vast majority of the volume we gained from UPS in the second half of 2020. Our unmatched value proposition has enabled recent high-value wins in the semiconductor, healthcare, and aerospace industries.

Bruce: First I want to thank our Fedex team for strong performance during the peak season.

Bruce: As a result of their hard work and commitment we once again delivered the best service offering in the industry.

Speaker Change: Put the right product in the right network, taking advantage of our continental surface networks in Europe.

Bruce: We continue to execute on our commercial priorities with a focus on revenue quality, while maintaining our industry leading service.

Speaker Change: And our market, leading Fedex freight LPL network in the United States.

Bruce: As a result, we took profitable share in the quarter at market rates and we continue to retain the vast majority of the volume we gained from UBS in the second half of 2023.

Speaker Change: And profitably penetrate new market segments at the right cost structure, including the premium airfreight market.

Bruce: Our unmatched value proposition has enabled recent high value wins in semiconductor healthcare and aerospace industries.

Speaker Change: As we move forward, we are managing the execution of Tri color with the rigor and discipline of drive and this will be a key element to our success.

Brie Carere: We will continue to execute our commercial strategy to compete and grow further in the high margin areas of the market.

Bruce: We'll continue to execute our commercial strategy to compete and grow further in the high margin areas of the market.

Speaker Change: Moving to another area of opportunity.

Brie Carere: Looking now by geography, in the United States, conditions have been weaker than we anticipated, and internationally, we continue to see softness. We, however, remain very focused on strong commercial execution.

Bruce: Looking now by geography in the United States conditions have been weaker than we anticipated and internationally. We continue to see softness. We however remain very focused on strong commercial execution.

Speaker Change: In Europe, we continue to improve our service levels and focus on commercial execution.

Speaker Change: However, the <unk> environment remains challenged.

Brie Carere: Taking a look at third-quarter revenue performance by segment. At FedEx ground, revenue was up about 1% year-over-year on a modest yield improvement in flat volume. Our team remains disciplined on growing with the right customers and MECs while offering the best value proposition in the industry. At FedEx Freight, revenue declined 3%. While volumes decreased compared to last year, the year-over-year decline moderated on a sequential basis. Revenue was also negatively affected by lower fuel surcharges and a decrease in weight per shipment, although the decline was partially offset by higher base yields. And at FedEx Express, revenue was down 2% year over year, driven by continued volume softness, lower fuel and demand surcharges, and a mixed shift towards deferred and e-commerce products.

Bruce: Taking a look at third quarter revenue performance by segment.

Speaker Change: And in this context, we are making progress on drive on track to generate $600 million of savings in fiscal year, 'twenty, five and seeking further profit optimization opportunities.

Bruce: Fedex ground revenue was up about 1% year over year on a modest yield improvement and flat volumes. Our team remains disciplined on growing with the right customers and Max while offering the best value proposition in the industry.

Speaker Change: As we have mentioned in previous calls we are also experiencing a continued headwind for the United States Postal service, which has reduced volume.

Bruce: At Fedex freight revenue declined 3%.

Bruce: While volume decreased compared to last year, the year over year decline moderated on a sequential basis.

Speaker Change: Despite this volume and revenue drawdown, our service obligations to the USPS remain fixed.

Bruce: Revenue was also negatively affected by lower fuel surcharges and a decrease in weight per shipment.

Bruce: The decline was partially offset by higher base yields.

Speaker Change: At express and across the business drive remains a key enabler of improved profitability, both in the near and the long term.

Bruce: And at Fedex Express revenue was down 2% year over year, driven by continued volume softness lower fuel and demand surcharges and a mix shift towards deferred any commerce products.

Speaker Change: We changed the way, we work and identify areas for structural cost reduction.

Brie Carere: The actions Raj outlined will allow us to profitably grow this business while continuing to deliver excellent service for our customers.

Bruce: The actions Raj outlined will allow us to profitably grow this business, while continuing to deliver excellent service for our customers.

Speaker Change: In Q3, we delivered $550 million of benefits from drive.

Brie Carere: Turning to our monthly volume trends during the quarter. Broadly speaking, volumes are stabilizing as we lap weaker demand from a year ago. International export increased 4% in the quarter, driven by a 29% growth in international economy, which of course is a market reset we expected. Freight shipments declined, but they continued to moderate sequentially. As Raj mentioned, postal volumes were a headwind in the quarter.

Bruce: Turning to our monthly volume trends during the quarter.

Speaker Change: Offsetting the impact of revenue declines and cost structures.

Speaker Change: <unk> speaking volumes are stabilizing as we lap weaker demand from a year ago.

Speaker Change: I am encouraged by the progress across all three categories.

Speaker Change: International export increased 4% in the quarter driven by a 29% growth in international economy, which of course is a market lease that we expected.

Speaker Change: This includes $290 million and our surface network.

Speaker Change: $110 million of savings in Air network and the international operations.

Speaker Change: Freight shipments declined but they continued to moderate sequentially.

Speaker Change: And $150 million of G&A.

Raj: As Raj mentioned postal volumes were a headwind in the quarter.

Speaker Change: Given the progress we have made year to date, we will deliver on our goal of $1 8 billion.

Brie Carere: Our current contract with the United States Postal Service expires on September 29th. We have made significant progress in negotiations for a new contract that aligns with our ongoing network transformation plan, while providing the USPS with the operational reliability and outstanding service we have delivered for them for more than two decades. A new multi-year agreement would provide a more efficient network with service to fewer markets. It would allow us to better adjust our overall network to demand.

Raj: Our current contract with the United States Postal service expires on September 29, we have made significant progress in negotiations for a new contract that aligns with our ongoing network transformation plan, while providing the USPS with the operational reliability and outstanding service, we have delivered for them for more than two decades.

Speaker Change: And permanent cost reduction benefits from drive this fiscal year.

Speaker Change: And are highly confident on the additional $2 2 billion in fiscal year 'twenty five.

Speaker Change: The work we are doing with drive was also helping advance planning for network through <unk>.

Raj: A new multiyear agreement would provide a more efficient network with service to fewer markets. It would allow us to better adjust our overall network to demand.

Speaker Change: This quarter, we rolled out our new surface operations leadership structure.

Brie Carere: We of course will let you know when we have it up. We continue to operate in a competitive but rational market environment. During the quarter, yield trends were similar to what we saw last quarter, with dynamics remaining mixed across the segment. At FedEx Express, yields remained pressured due to a tapering of international export demand surcharges and an increasing mix of lower-yielding e-commerce and deferred products. Yield was also pressured by increased capacity in the market. A FedEx ground yield increased 1% driven by home delivery, partially offset by ground economy. Higher weight per package and favorable customer segment mix offset a lower fuel surcharge relative to the prior year.

Raj: We of course, we'll let you know when we have an update.

Speaker Change: Under this new structure leaders and their teams will be responsible for all express and ground package operations and facilities and their respective divisions regions and districts.

Raj: We continue to operate in a competitive but rational market environment during the quarter yield 10 for similar to what we saw last quarter with dynamics remain remaining mixed across the segments and Fedex Express yields remained pressured due to the tapering of international export demand surcharges, and an increasing mix of lower yielding E Commerce Center.

Speaker Change: This will enhance operational execution and offer greater insights into the packaged business overall with accountability at all levels.

Speaker Change: More broadly we have now implemented network <unk> and over 50 locations with dozens more to follow in calendar 2024, all while maintaining outstanding service.

Raj: Current products.

Raj: Yield was also pressured by increased capacity in the market.

Raj: At Fedex ground yield increased 1% driven by home delivery, partially offset by ground economy.

Higher weight per package and favorable customer segment mix offset a lower fuel surcharge relative to the prior year.

Speaker Change: And as a reminder, we will begin the rollout of Canada in April and expect to complete this transition by October of 2024.

Brie Carere: And at FedEx Freight, revenue per shipment was down 1%, driven by lower fuel surcharges and lower weight. In January, we rolled out a 5.9% GRI, and importantly, we've been able to capture a high percentage of that rating. During peak, our holiday peak residential surcharges enabled us to effectively offset higher costs, delivering $120 million in profits.

Raj: And at Fedex freight revenue per shipment was down 1% driven by lower fuel surcharges and lower waste.

Speaker Change: And as part of our transformation, we are on track to complete the consolidation of Fedex operating companies into one streamlined and simplified organization.

Raj: And January we rolled out a five 9% Gi and importantly, we've been able to capture a high percentage of that rate increase.

Raj: During peak, our holiday peak residential surcharges enabled us to effectively offset higher costs delivering $120 million in profit.

Speaker Change: Creating efficiencies as we build a stronger more profitable enterprise.

Speaker Change: In June 2020 for Fedex Express Fedex ground, and Fedex services will consolidate into federal Express operation.

Brie Carere: We are very confident we have the right strategy in place balancing both volume and yield growth. We are building our network of the future with digital and data-driven solutions that simplify the customer experience and further strengthen our best-in-class customer offering. For example, earlier this month, we enhanced our healthcare offering with more powerful capabilities to prioritize critical life-saving healthcare shipments above other volume within the network. Healthcare customers now have the ability to select monitoring and intervention service options. They cover categories such as temperature requirements and vaccines, and they do this at the package level. Each express shipment now includes specific healthcare identifiers, so that if we need to intervene, we are able to do it with more speed and more precision.

Raj: We are very confident we have the right strategy in place balancing both volume and yield growth.

Raj: We are building our network of the future with digital and data driven solutions that simplify the customer experience and further strengthen our best in class customer offerings.

Speaker Change: The work we are doing to create a more flexible efficient and intelligent network is translating into direct improvements in our customer offering and profitability.

Raj: For example earlier this month, we enhanced our health care offering with more powerful capabilities to prioritize critical lifesaving healthcare shipments above other volume within the network power.

Speaker Change: When severe weather hits it can cost a domino effect of delays and reduced service levels across our network.

Raj: Healthcare customers now have the ability to select monitoring and intervention service options. They cover category, such as temperature requirements and vaccines and they do this at the package level.

Speaker Change: While we have always used data analytics to assess the effect of weather events or new weather contingency playbook developed by our planning engineering and data works teams enhances the process by leveraging predictive capabilities to pro actively divert stormbound.

Raj: Each express shipment now includes specific healthcare identifiers, so that if we need to intervene we're able to do it with more speed and more precision.

Brie Carere: And of course, in January, we announced the FDX Commerce Platform. FDX connects the entire customer journey by offering end-to-end e-commerce solutions, making it easier for companies to grow demand, increase conversion, optimize fulfillment, and streamline their returns. The FDX platform will enable us to enhance our long-standing relationships with merchants of all sizes to help them optimize and grow their business.

Raj: And of course in January we announced the <unk> Commerce platform.

Speaker Change: Volumes across our networks.

Raj: <unk> connects the entire customer journey by offering end to end E Commerce solutions, making it easier for companies to grow demand increased conversion optimize fulfillment and streamline their returns.

Speaker Change: By combining the power of digital insights and predictive analytics with our physical network.

Speaker Change: Effectively mitigated the impact of the January winter storm that hit our express hub in Memphis by shifting Memphis bound express volume to ground our freight at the origin location.

Raj: <unk> platform will enable us to enhance our long standing relationships with merchants of all sizes to help them optimize and grow their business.

Speaker Change: Despite this year's event, having a longer impact to Memphis operations, when compared to the weather event in February 2023.

Brie Carere: We have opened a private preview for select brands and retailers, and based on their feedback, I am incredibly excited about the official launch later this year.

Raj: We have opened up private preview for select brands and retailers and based on their feedback I am incredibly excited about the official launch later this year.

Speaker Change: Our network for Corey was twice as fast.

Brie Carere: In closing, I'm very proud of our entire global team and how they continue to deliver outstanding service as we navigate a very dynamic market.

Raj: In closing I'm very proud of our entire global team and how they continue to deliver outstanding service as we navigate a very dynamic market and with that I'll turn it over to John to cover our financials in more detail.

Speaker Change: This quarter, we also announced a significant initiative mdx.

John Dietrich: And with that, I'll turn it over to John to cover our financials in more detail. Thanks, Brie. Our third quarter results reflect ongoing progress on our drive initiatives, as well as our continued focus on service and revenue quality. As a result of these efforts, we delivered operating income growth and margin expansion for the third quarter in a row, despite declining revenue in a challenging market environment. Taking a closer look at our performance in the quarter on a year over year basis, and at the enterprise level, adjusted operating income increased by $192 million and adjusted operating margin expanded by 90 basis.

Speaker Change: Fully integrated data driven commerce platform that connects to entire customer journey from demand to returns it.

John: Thanks Barry.

John: Our third quarter results reflect ongoing progress on our drive initiatives as well as our continued focus on service and revenue quality.

Speaker Change: It will provide real time visibility to our help our customers optimize and grow their business leveraging our analytical capabilities and data from the 15 million packages, we deliver every day.

John: As a result of these efforts we delivered operating income growth and margin expansion for the third quarter in a row.

John: Despite declining revenue in a challenging market environment.

Speaker Change: I'm excited to have <unk> asami, serving as chief digital and information officer effective July the first.

John: Taking a closer look at our performance in the quarter on a year over year basis and at the enterprise level adjusted operating income increased by $192 million and adjusted operating margin expanded by 90 basis points.

Speaker Change: His proven track record of driving optimization and innovation for our business through data and insights combined with his deep knowledge of the network will be critical to moving <unk> forward as we become a data driven digital first company.

John Dietrich: At Express, Adjusted Operating Income increased by $134 million and Adjusted Operating Margin expanded 130 basis points. The benefits of drive initiatives and an additional operating date more than offset lower revenue. At ground, the team delivered another quarter of strong results. Adjusted Operating Income increased by $120 million and Adjusted Operating Margin expanded by 140 basis points. due to cost reductions and yield improvements. Despite slightly lower volumes and in an inflationary environment, ground cost per package was flat year over year, with lower line haul expenses and improved dock productivity offsetting higher first and last mile costs. And at freight, while operating margin remained strong, operating income declined by $46 million and operating margin declined by 170 basis points.

John: At express adjusted operating income increased by $134 million and adjusted operating margin expanded 130 basis points.

Speaker Change: As I look across the business and these financial results there are clear signs of progress on our transformation.

John: The benefits of drive initiatives and an additional operating days more than offset lower revenue.

Speaker Change: Our strategy is generating results and we are well placed to maintain our leadership position, while delivering improving financial outcome.

John: At ground the team delivered another quarter of strong results.

John: Adjusted operating income increased by $120 million and adjusted operating margin expanded by 140 basis points due.

Speaker Change: Together, we remain focused and committed to our long term goals supporting the creation of significant long term value for our stockholders.

John: Due to cost reductions and yield improvement.

John: Despite slightly lower volumes and in an inflationary environment ground cost per package was flat year over year with lower line haul expenses and improved dock productivity offsetting higher first and last mile costs.

Bruce: With that let me turn the call over to Bruce.

Bruce: Thank you Raj and good afternoon, everyone.

Bruce: First I want to thank our Fedex team for strong performance during the peak season.

Bruce: As a result of their hard work and commitment we once again delivered the best service offering in the industry.

John: And at freight while operating margin remains strong operating income declined by $46 million and operating margin declined by 170 basis points.

Bruce: We continue to execute on our commercial priorities with a focus on revenue quality, while maintaining our industry leading service as a result, we took profitable share in the quarter at market rates and we continue to retain the vast majority of the volume we gained from UBS in the second half of 2023.

John Dietrich: driven by lower fuel surcharges, reduced weight per shipment, and lower shipment. These results also reflect the lapping of a $30 million facility gain last year, partially offset by the benefit of an additional operating day during the quarter. Looking at the quarter overall, weather had an immaterial year-over-year effect on profitability.

John: Driven by lower fuel surcharges reduced weight per shipment and lower shipments.

John: These results also reflect the lapping of a $30 million facility gain last year, partially offset by the benefit of an additional operating day during the quarter.

Our unmatched value proposition has enabled recent high value wins in semiconductor healthcare and aerospace industries.

John: Looking at the quarter overall weather had an immaterial year over year effect on profitability.

Bruce: We'll continue to execute our commercial strategy to compete and grow further in the high margin areas of the market.

John Dietrich: Before turning to the outlook, I'd like to spend a few moments updating you on our cost reduction initiatives, including DRIVE, and more specifically, G&A. As an initial matter, and as part of responsible headcount management, we have reduced our workforce by nearly 22,000 over the last year and expect additional opportunities in the future as we move forward with our transformation. Within GNA, we continue to make significant changes to how we approach areas like procurement and technology. so that we are a more efficient digitally led organization. In addition, Global Functional Alignment provides savings opportunities. I'm pleased that we have achieved $350 million of GNA savings year-to-date, including $150 million in the third quarter.

John: Before turning to the outlook I'd like to spend a few moments updating you on our cost reduction initiatives, including drive and more specifically G&A.

Looking now by geography in the United States conditions have been weaker than we anticipated and internationally. We continue to see softness. However remained very focused on strong commercial execution.

John: As an initial matter and as part of responsible head count management, we have reduced our workforce by nearly 22000 over the last year and expect additional opportunities in the future as we move forward with our transformation.

Bruce: Taking a look at third quarter revenue performance by segment.

John: Within G&A, we continue to make significant changes to how we approach areas like procurement and technology.

So that we are a more efficient digitally led organization in.

Bruce: At Fedex freight revenue declined 3%.

John: In addition, global functional alignment provides savings opportunities.

Bruce: While volume decreased compared to last year, the year over year decline moderated on a sequential basis.

John: I am pleased that we have achieved $350 million of G&A savings year to date, including $150 million in the third quarter.

Bruce: Revenue was also negatively affected by lower fuel surcharges and a decrease in weight per shipment.

Bruce: The decline was partially offset by higher base yields.

John Dietrich: Taking a closer look at sourcing and procurement, we've continued to evolve the sourcing and procurement function from a segregated and regional structure to a centralized global organization that will manage most third party spend across the entire enterprise. With new leaders in place, we're developing new category strategies and have already identified about 20 discrete categories that we'll manage centrally in cooperation with functional leaders. By implementing these new strategies at the enterprise level, we'll have tighter spend oversight, we'll better leverage our scale and buying power, and generate significant cost savings. Overall, I'm very pleased with our enterprise-wide drive progress this quarter, and we will deliver $1.8 billion in savings for the full fiscal year.

John: Taking a closer look at sourcing and procurement, we've continued to evolve the sourcing and procurement function from a segregated and regional structure to a centralized global organization that will manage most third party spend across the entire enterprise.

Bruce: And at Fedex Express revenue was down 2% year over year, driven by continued volume softness lower fuel and demand surcharges and a mix shift towards deferred any commerce products.

Raj Subramaniam: The actions Raj outlined will allow us to profitably grow this business, while continuing to deliver excellent service for our customers.

John: With new leaders in place.

John: We're developing new category strategies and have already identified about 20 discrete categories.

Raj Subramaniam: Turning to our monthly volume trends during the quarter.

John: That will manage centrally in cooperation with functional leaders.

Raj Subramaniam: Finally speaking volumes are stabilizing as we lap weaker demand from a year ago.

John: By implementing these new strategies at the enterprise level.

Raj Subramaniam: International export increased 4% in the quarter driven by a 29% growth in international economy, which of course is a market lease that we expected.

John: Have tighter spend oversight will better leverage our scale and buying power and generate significant cost savings.

Raj Subramaniam: Freight shipments declined but they continued to moderate sequentially.

John: Overall, I'm very pleased with our enterprise wide drive progress this quarter, and we will deliver $1 $8 billion in savings for the full fiscal year.

Raj Subramaniam: As Raj mentioned postal volumes were a headwind in the quarter.

Raj Subramaniam: Our current contract with the United States Postal service expires on September 29.

John Dietrich: Now turning to our fiscal year outlook, and as Raj shared earlier, based on our performance year-to-date and our current view of the rest of the year, we are reaffirming the midpoint of our adjusted EPS range while narrowing our outlook from the prior range of $17 to $18.50 to $17.25 to $18.25. At the midpoint of the narrowed range, we continue to assume a low single-digit percentage decline in revenue for the full year. As always, we'll closely monitor the global demand environment and other key factors, including inventory restocking, global trade, inflation, and e-commerce trends, which informs our view of overall expected revenue.

John: Now turning to our fiscal year outlook and as Rob shared earlier based on our performance year to date and our current view of the rest of the year. We are reaffirming the midpoint of our adjusted EPS range, while narrowing our outlook from the prior range of $17 to $18 50.

Raj Subramaniam: We have made significant progress in negotiations for a new contact and aligns with our ongoing network transformation plan, while providing the USPS with the operational reliability and outstanding service, we have delivered for them for more than two decades.

Raj Subramaniam: A new multiyear agreement would provide a more efficient network with service to fewer markets. It would allow us to better adjust our overall network to demand.

John: The $17 25 to $18 25.

John: At the midpoint of the narrowed range, we continue to assume a low single digit percentage decline in revenue for the full year.

Raj Subramaniam: We are of course, we'll let you know when we have an update.

Raj Subramaniam: We continue to operate in a competitive but rational market environment during the quarter yield 10 for similar to what we saw last quarter with dynamics remain remaining mixed across the segments and Fedex Express yields remained pressured due to the tapering of international export demand surcharges, and an increasing mix of lower yielding e-commerce into.

John: As always we'll closely monitor the global demand environment, and other key factors, including inventory restocking global trade inflation, and ecommerce trends, which informs our view of overall expected revenue.

John Dietrich: With regard to our fourth quarter expectations, as implied by our outlook range, we expect year-over-year profit improvement, despite lapping the onset of certain structural benefits executed in last year's fourth quarter at Express and Ground. Looking on a sequential basis, the leap day in the third quarter affects our typical seasonality. At the segment level, we're maintaining our full year expectations for a modest year-over-year adjusted margin contraction at Express. Adjusted Margin Improvement at Ground, and Strong but Lower Year-over-Year Margin at Freight. At Express, we're looking at every aspect of the business, including taking a fresh look at additional opportunities to improve our European business.

Raj Subramaniam: Products yield.

John: With regard to our fourth quarter expectations as implied by our outlook range, we expect year over year profit improvement. Despite lapping the onset of certain structural benefits executed in last year's fourth quarter at express and ground.

Raj Subramaniam: Yield was also pressured by increased capacity in the market.

Raj Subramaniam: At Fedex ground yield increased 1% driven by home delivery, partially offset by granting economy.

Raj Subramaniam: Higher weight per package and favorable customer segment mix offset a lower fuel surcharge relative to the prior year.

John: Looking on a sequential basis.

John: <unk> day in the third quarter affects our typical seasonality.

Raj Subramaniam: And at Fedex freight revenue per shipment was down 1% driven by lower fuel surcharges and lower waste.

John: At the segment level were maintaining our full year expectations for a modest year over year adjusted margin contraction at express.

Raj Subramaniam: In January we rolled out a five 9% Gi and importantly, we've been able to capture a high percentage of that rate increase during.

John: Adjusted margin improvement at ground and.

Raj Subramaniam: During peak, our holiday peak residential surcharges enabled us to effectively offset higher costs delivering $120 million in profit.

John: And strong, but lower year over year margin at freight.

John: At Express we're looking at every aspect of the business, including taking a fresh look at additional opportunities to improve our European business.

Raj Subramaniam: We are very confident we have the right strategy in place balancing both volume and yield growth.

John Dietrich: And we're confident in our ability to unlock more value at Express and across all our businesses as we continue to seek optimization opportunities. Our bridge shows the operating profit elements embedded in our full-year outlook. For illustrative purposes, we continue to use adjusted operating profit of $6.3 billion, the equivalent to $17.75 of adjusted EPS. as the midpoint of our narrowed outlook range. To walk the bridge to $6.3 billion of adjusted operating profit, we're now assuming that revenue net of cost increases is up $200 million, that we experience $800 million of international export yield pressure as peak surcharges diminish and product mix continues shifting toward deferred Variable compensation increases by $300 million.

Raj Subramaniam: We are building our network of the future with digital and data driven solutions that simplify the customer experience and further strengthen our best in class customer offerings.

John: And we're confident in our ability to unlock more value at express and across all our businesses as we continue to seek optimization opportunities.

Raj Subramaniam: For example earlier this month, we enhanced our health care offering with more powerful capabilities to prioritize critical lifesaving healthcare shipments above other volume within the network's health.

John: Our bridge shows the operating profit elements embedded in our full year outlook.

John: For illustrative purposes, we continue to use adjusted operating profit of $6 3 billion.

Raj Subramaniam: Health care customers now have the ability to select monitoring and intervention service options. They cover category, such as temperature requirements and vaccines and they do this at the package level.

John: The equivalent to $17 75 of adjusted EPS.

John: As the midpoint of our narrowed outlook range.

Raj Subramaniam: Each express shipment now includes specific health care identifiers, so that if we need to intervene we are able to do it with more speed and more precision.

John: To walk the bridge to $6 3 billion of adjusted operating profit. We're now assuming that revenue net of cost increases is up $200 million.

Raj Subramaniam: And of course in January we announced the <unk> Commerce platform.

John: That we experienced $800 million of international export yield pressure as peak surcharges diminished and product mix continues shifting toward deferred.

Raj Subramaniam: <unk> connects the entire customer journey by offering end to end E Commerce solutions, making it easier for companies to grow demand increased conversion optimized fulfillment and streamline their returns.

John: Variable compensation increases by $300 million.

Raj Subramaniam: <unk> platform will enable us to enhance our long standing relationships with merchants of all sizes to help them optimize and grow their business.

John Dietrich: and that these pressures are more than offset by $1.8 billion in structural cost savings from drive. At the midpoint, we would expect fiscal 2024 adjusted operating income to increase approximately 17% Despite revenue declining by a low single-digit percentage. As I've discussed on prior calls, we remain focused on reducing our capital intensity and continuing to provide increased stockholder returns. as well as maintaining a strong balance sheet, prudent capital allocation, and improving return on invested capital. Our capital investment priorities will be on improving efficiency, modernizing facilities, and optimizing our network. Capital expenditures for the quarter were $1.4 billion, bringing year-to-date CapEx to $4 billion.

John: And that these pressures are more than offset by $1 8 billion and structural cost savings from drive.

Raj Subramaniam: We have opened up private preview for select brands and retailers and based on their feedback I am incredibly excited about the official launch later this year.

John: At the midpoint, we would expect fiscal 2024, adjusted operating income to increase approximately 17%.

Raj Subramaniam: In closing I'm very proud of our entire global team and how they continue to deliver outstanding service as we navigate a very dynamic market and with that I'll turn it over to John to cover our financials in more detail.

John: Despite revenue declining by a low single digit percentage.

John: As I've discussed on prior calls we remain focused on reducing our capital intensity and continuing to provide increased stockholder returns.

John: Thanks Bree.

John: Our third quarter results reflect ongoing progress on our drive initiatives as well as our continued focus on service and revenue quality.

John: As well as maintaining a strong balance sheet prudent capital allocation and improving return on invested capital.

John: As a result of these efforts we delivered operating income growth and margin expansion for the third quarter in a row.

John: Our capital investment priorities will be on improving efficiency modernizing facilities and optimizing our network.

John: Despite declining revenue in a challenging market environment.

John: Capital expenditures for the quarter were $1 4 billion, bringing year to date capex of $4 billion.

John: Taking a closer look at our performance in the quarter on a year over year basis and at the enterprise level adjusted operating income increased by $192 million.

John Dietrich: We now anticipate capital spend of $5.4 billion for the full year, which is down over $700 million from last year and down $300 million from our prior forecast of $5.7 billion. We also continue to expect aircraft-related cap ex to decline to approximately $1 billion in fiscal year 26. And we expect CapEx as a percentage of revenue will keep declining in the future as we reduce our facility's footprint through Network 2.0 and continue to plan for lower annual aircraft CapEx beyond fiscal year 26. We currently have 37 jet aircraft parked, which is up from 20 last quarter, and as previously communicated, we will retire nine more MD-11s in Q4.

John: And we now anticipate capital spend of $5 4 billion for the full year, which is down over $700 million from last year and down $300 million from our prior forecast of $5 7 billion.

John: And adjusted operating margin expanded by 90 basis points.

John: At express adjusted operating income increased by $134 million and adjusted operating margin expanded 130 basis points.

John: We also continue to expect aircraft related capex to decline to approximately $1 billion in fiscal.

John: Fiscal year 2006.

John: The benefits of drive initiatives and an additional operating days more than offset lower revenue.

John: And we expect Capex as a percentage of revenue will keep declining in the future as we reduce our facilities footprint through network <unk> and continue to plan for lower annual aircraft Capex beyond fiscal year 'twenty six.

John: At ground the team delivered another quarter of strong results.

John: Adjusted operating income increased by $120 million and adjusted operating margin expanded by 140 basis points.

John: We currently have 37 jet aircraft parked, which is up from 20 last quarter and as previously communicated we will retire nine more MD elevens in Q4.

John: Due to cost reductions and yield improvement.

John: Despite slightly lower volumes and in an inflationary environment ground cost per package was flat year over year.

John Dietrich: Consistent with our goal of increasing stockholder returns, we completed a $1 billion accelerated share repurchase transaction in the third quarter, bringing our total share repurchases for the first nine months of the fiscal year to $2 billion. And we expect to repurchase an additional $500 million of common stock in the fourth quarter, bringing total fiscal year 24 repurchases to $2.5 billion, while also paying our dividend in line with our previously stated capital return plan.

John: Consistent with our goal of increasing stockholder returns, we completed a $1 billion accelerated share repurchase transaction in the third quarter.

John: With lower line haul expenses and improved dock productivity offsetting higher first and last mile costs.

John: And afraid while operating margin remains strong operating income declined by $46 million and operating margin declined by 170 basis points.

John: Bringing our total share repurchases for the first nine months of the fiscal year to $2 billion.

John: And we expect to repurchase an additional $500 million of common stock in the fourth quarter.

John: Driven by lower fuel surcharges reduced weight per shipment and lower shipments.

John: Bringing total fiscal year 'twenty for repurchases to $2 5 billion.

John: These results also reflect the lapping of a $30 million facility gain last year, partially offset by the benefit of an additional operating day during the quarter.

John: While also paying our dividend in line with our previously stated capital return plan.

John Dietrich: I'm also pleased to announce that our Board of Directors has authorized a new $5 billion share of repurchase program, which augments the $600 million that remains available for repurchase under the $5 billion 2021 authorization.

I'm also pleased to announce that our board of directors has authorized a new $5 billion share repurchase program, which augments the 600 million that remains available for repurchase under the $5 billion 2021 authorization.

John: Looking at the quarter overall weather had an immaterial year over year effect on profitability.

John: Before turning to the outlook I'd like to spend a few moments updating you on our cost reduction initiatives, including drive and more specifically G&A.

John Dietrich: This reinforces our commitment to support long-term stockholder returns. Overall, I want to acknowledge and thank the entire team for their efforts in continuing to improve profitability in a challenging revenue environment.

John: This reinforces our commitment to support long term stockholder returns.

John: Overall, I want to acknowledge and thank the entire team for their efforts and continuing to improve profitability in a challenging revenue environment.

John Dietrich: We have more work to do, but I'm encouraged by the commitment and focus I've seen from our teams to advance our transformation and provide our customers and stockholders with even greater value.

John: We have more work to do but I'm encouraged by the commitment and focus I have seen from our teams to advance our transformation and provide our customers and stockholders with even greater value.

John: Within G&A, we continue to make significant changes to how we approach areas like procurement and technology.

Speaker: With that, let's open it up for questions. Thank you.

John: With that let's open it up for questions.

John: So that we are a more efficient digitally led organization in.

John: Thank you we will now begin the question and answer session.

Speaker: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keypad. To withdraw your question, please press star then 2. Please limit yourself to just one question.

John: In addition, global functional alignment provides savings opportunities.

John: I ask a question you May press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

John: I am pleased that we have achieved $350 million of G&A savings year to date, including $150 million in the third quarter.

John: Please limit yourself to just one question.

Speaker: At this time, we will pause momentarily to assemble our roster.

John: At this time, we will pause momentarily to assemble our roster.

Jordan Alliger: Today's first question comes from Jordan Alliger with Goldman Sachs. Please go ahead. Yeah. Hi. Thanks for the update on drive. If I did the math right, I think there's about three hundred eighty five million or so left for the final quarter of this fiscal year. You maybe talk to where you think this money or the savings, which buckets are going to go to surface air, GNA. And I'm also just sort of curious on the surface side, how much of that is actually tied to express surface stuff? Right.

Speaker Change: Today's first question comes from Jordan <unk> with Goldman Sachs. Please go ahead, yes.

John: With new leaders in place.

Speaker Change: Yes, hi.

John: We're developing new category strategies and have already identified about 20 discrete categories.

Jordan: Thanks for the update on drive if I did the math right I think there is about $385 million or so left the final quarter of this fiscal year, maybe talk to where you think this money where the savings which buckets are going to go to surface Air G&A and I'm also just sort of curious on the surface side, how much of that.

John: That will manage centrally in cooperation with functional leaders.

John: By implementing these new strategies at the enterprise level will have tighter spend oversight will better leverage our scale and buying power and generate significant cost savings.

Speaker Change: Is actually tied to express surface stuff.

John: Overall, I am very pleased with our enterprise wide drive progress this quarter, and we will deliver $1 $8 billion in savings for the full fiscal year.

John Dietrich: So, thank you, Jordan, for the question. It's John. And I'm not going to speak specifically to the number you raised with regard to the remainder of the year in drive, except to say that we are committed to the $1.8 billion for the fiscal year. And I think it's safe to assume that's spread across all of our operating companies. And with regard to your question on surface, it's predominantly ground. But as we continue to migrate towards Network 2.0 and through our drive initiatives, there's a lot of complementary work that's being done together by the teams. So, those savings are being realized both at Express and ground.

Speaker Change: So thank you Jordan for the question it's John.

Speaker Change: I'm not going to speak specifically to the number you raised with regard to the remainder of the year and drive except to say that.

Speaker Change: Now turning to our fiscal year outlook and as Rod shared earlier based on our performance year to date and our current view of the rest of the year. We are reaffirming the midpoint of our adjusted EPS range, while narrowing our outlook from the prior range of $17 to $18 50.

Speaker Change: That we are committed to the $1 8 billion for the fiscal year.

Speaker Change: I think it's safe to assume that's spread across all of our operating companies and with regard to your question on surface.

Speaker Change: Predominantly ground.

Speaker Change: As we continue to migrate towards.

Speaker Change: The $17 25 to $18 25.

Speaker Change: Network <unk> and through our drive initiatives, there's a lot of complementary work that's being done together by the teams.

Speaker Change: At the midpoint of the narrowed range, we continue to assume a low single digit percentage decline in revenue for the full year.

Speaker Change: So those savings are being realized both at express and ground.

Thomas Wadewitz: The next question is from Tom Wadewitz with UBS. Yeah, good afternoon. I wanted to ask you a bit about the trajectory of the margin on Express that, excuse me, the February quarter was quite a bit better than expected. And I'm just wondering, how do we think about that as you go into fiscal 25? I think two specific items you did mention, one, the 600 million improvement in Europe that I think would would go to Express and just kind of visibility on that. And also how we should think about postal delivery, you had some comments, and I think that's been characterized as a 400 million headwind.

Tom <unk>: The next question is from Tom <unk> with UBS.

Speaker Change: As always we'll closely monitor the global demand environment, and other key factors, including inventory restocking global trade inflation, and ecommerce trends, which informs our view of overall expected revenue.

Speaker Change: Yes.

Speaker Change: Yes, good afternoon.

Speaker Change: Wanted to ask you a bit about the trajectory of the margin unexpressed.

Speaker Change: During the February quarter was quite a bit better than expected and I'm. Just wondering how do we think about that as you go into fiscal 'twenty five I think two specific items, you did mentioned $1 $600 million improvement.

Speaker Change: With regard to our fourth quarter expectations as implied by our outlook range, we expect year over year profit improvement. Despite lapping the onset of certain structural benefits executed in last year's fourth quarter at express and ground.

Speaker Change: Improvement in Europe that I think would go to express and just kind of visibility on that and also how we should think about postal.

Speaker Change: Looking on a sequential basis.

Speaker Change: Leap day in the third quarter affects our typical seasonality.

Speaker Change: But you had some comments and I think that's been characterized as a $400 million headwind. So is it reasonable to say that that $400 million kind of add back to the numbers. So anyway, just some broader comments on express and some of the bigger items. Thank you.

Speaker Change: At the segment level were maintaining our full year expectations for a modest year over year adjusted margin contraction at express.

John Dietrich: So, you know, is it reasonable to say that that's 400 million, you kind of add back to the number. So anyways, just some broader comments on Express and some of the bigger items. Thank you.

Adjusted margin improvement at ground and.

John Dietrich: Great. Thanks, Tom.

Speaker Change: <unk> strong, but lower year over year margin at freight.

Speaker Change: Great. Thanks, Tom It's John again, yes, we're quite pleased with the progress we've made at express and the margin expansion.

John Dietrich: It's John again. Yeah, we're quite pleased with the progress we've made at Express and the margin expansion. As Raj mentioned, this is all of our primary focus to continue that expansion, and we're excited about the opportunities that lie ahead for us in drive. With regard to Europe, that will be a key focus area of ours, and we are committed to the $600 million that you mentioned. And the Postal Service, certainly, as we're negotiating toward the deal, if that deal were to materialize, you would expect that it's mutually beneficial for both sides. So we're looking forward to bringing that to closure as soon as possible, and all of that will contribute to our ability to continue to expand our margins at our largest sector at Express.

Speaker Change: At Express we're looking at every aspect of the business, including taking a fresh look at additional opportunities to improve our European business.

Speaker Change: As Raj mentioned this is all of our primary focus to continue that expansion and we're excited about the opportunities that lie ahead for us and drive.

Speaker Change: And we're confident in our ability to unlock more value at express and across all our businesses as we continue to seek optimization opportunities.

Speaker Change: With regard to Europe that will be a key focus area of ours, and we are committed to the $600 million debt.

Speaker Change: That you mentioned.

Speaker Change: Our bridge shows the operating profit elements embedded in our full year outlook.

Speaker Change: And the postal service certainly as we're negotiating towards a deal if that deal were to materialize you would expect that it's mutually beneficial for both sides.

Speaker Change: For illustrative purposes, we continue to use adjusted operating profit of $6 3 billion.

Speaker Change: So we're looking forward to bringing that to closure as soon as possible.

Speaker Change: The equivalent to $17 75 of adjusted EPS.

Speaker Change: And all of that will contribute to our ability to continue to expand our margins at our largest sector at express.

Speaker Change: As the midpoint of our narrowed outlook range.

Speaker Change: To walk the bridge to $6 3 billion of adjusted operating profit. We're now assuming that revenue net of cost increases is up $200 million.

Speaker Change: Okay.

Jonathan Chappell: The next question is from Jonathan Chappell with Evercore. Please go ahead. Thank you. Good afternoon. Brie, you'd mentioned a competitive but rational market environment as it relates to pricing and yield. We are several quarters into the demand downturn here. And of course, there's been some competitive issues directly, you know, in your business.

Speaker Change: The next question is from Jonathan Chappell with Evercore. Please go ahead.

Jonathan Chappell: Thank you good afternoon, where you had mentioned a competitive but rational market environment as it relates to pricing and yields we are several quarters into the demand downturn here and of course, there's been some competitive issues directly.

Speaker Change: That we experienced $800 million of international export yield pressure as peak surcharges diminished and product mix continues shifting toward deferred.

Speaker Change: Variable compensation increases by $300 million.

Speaker Change: And that these pressures are more than offset by $1 8 billion and structural cost savings from drive.

Jonathan Chappell: And in your business as you look forward, if we continue to kind of bounce along this bottom on demand internationally, but I think more specifically to the United States does the pricing environment start to waver at all of it do you really need a macro tailwind in before we can see maybe a stabilization and a reacceleration of yields.

Brie Carere: As you look forward, if we continue to kind of bounce along this bottom on demand, you know, internationally, but I think more specifically to the United States, does the pricing environment start to waver at all a bit? Do you really need a macro tailwind before we can see maybe a stabilization or reacceleration of yield?

Speaker Change: At the midpoint, we would expect fiscal 2024, adjusted operating income to increase approximately 17%.

Speaker Change: Despite revenue declining by a low single digit percentage.

Brie Carere: Hi, Jonathan, thanks for the question. I think from a competitive environment perspective, yes, it is competitive, but I don't think that's particularly different in our industry. We're very used to a competitive environment. And the market does feel quite rational to me. When we look at the yield focus for the team, I'm actually pleased with the discipline of both the sales and the pricing organization. If you remove the fuel headwind across each one of our segments, Express, Ground, and FedEx Freight, we have kind of low single digit yield improvement at the base. So I think the team is continuing to execute on our revenue quality strategy.

Jonathan Chappell: Hi, Jonathan Thanks for the question I think from a competitive environment perspective, yes. It is competitive but I don't think that's particularly different in our industry. We're very used to a competitive environment and the market does still quite rational to me when we look at the yield focus for the team I'm actually pleased with the <unk>.

Speaker Change: As I've discussed on prior calls we remain focused on reducing our capital intensity and continuing to provide increased stockholder returns.

Speaker Change: As well as maintaining a strong balance sheet prudent capital allocation and improving return on invested capital.

Jonathan Chappell: Japan about the sales and the pricing organization, if you remove the fuel headwind across each one of our segments Express ground and Fedex freight we have kind of low single digit yield improvement in the base. So I think the team is continuing to execute on our revenue quality strategy and from a momentum perspective.

Speaker Change: Our capital investment priorities will be on improving efficiency modernizing facilities and optimizing our network.

Speaker Change: Capital expenditures for the quarter were $1 4 billion, bringing year to date capex of $4 billion.

Speaker Change: And we now anticipate capital spend of $5 4 billion for the full year, which is down over $700 million from last year and down $300 million from our prior forecast of $5 7 billion.

Brie Carere: And from a momentum perspective, we do have some headwinds this year that will diminish next year, especially in the international market. You know, if you think about calendar year 23, from an air freight perspective, the overall air freight market yields decreased between 30 and 40%. That is not going to repeat next year. And then of course, from an international demand surcharge, it will continue to be a headwind in FY25, but less of a headwind than this fiscal year.

Jonathan Chappell: If we do have some headwinds this year that will diminish next year, especially in the international markets. If you think about calendar year 'twenty three from an airfreight perspective, the overall airfreight market yields decreased between 30 and 40% that is not going to repeat next year and then of course from an international demand surcharge.

Speaker Change: We also continue to expect aircraft related capex to decline to approximately $1 billion in Fiske.

Fiscal year 'twenty six.

Speaker Change: And we expect Capex as a percentage of revenue will keep declining in the future as we reduce our facilities footprint through network <unk> and.

Jonathan Chappell: It will continue to be a headwind in FY 'twenty, five but less of a headwind in this fiscal year.

Bascome Majors: The next question comes from Bascome Majors with Susquehanna. Thanks for taking my question.

Speaker Change: The next question comes from Boscombe majors with Susquehanna.

Speaker Change: We need to plan for lower annual aircraft Capex beyond fiscal year 2006.

Speaker Change: We currently have 37 jet aircraft parked, which is up from 20 last quarter and as previously communicated we will retire nine more MD elevens in Q4.

Speaker Change: Thanks for taking my question. So in June you'll complete the legal consolidation of express ground and services as part of the one Fedex effort.

Speaker: So in June, you'll complete the legal consolidation of express ground and services as part of the one FedEx effort.

Rajesh Subramaniam: Can you give us a look at how that will change how you manage the business starting in July, how it will change how you report your financials and operating stats and Can you give us some assurance that we'll get a deep history of comparable financial and operating data to help track your progress as you get further into the operational side of the integration in 2025, six and seven? Thank you.

Can you give us a look at how that will change how you manage the business starting in July how it will change how you report your financials and operating stats.

Speaker Change: Consistent with our goal of increasing stockholder returns, we completed a $1 billion.

Speaker Change: The accelerated share repurchase transaction in the third quarter, bringing.

Speaker Change: Can you give us some assurance that we will get a deep history of comparable financial and operating data to help track your progress as you get further into the operational side of the integration in 2025, six and seven thank you.

Bringing our total share repurchases for the first nine months of the fiscal year to $2 billion.

Speaker Change: And we expect to repurchase an additional $500 million of common stock in the fourth quarter.

Rajesh Subramaniam: Thank you, Bascome, and let me start and then John can add on to this. First of all, we are well on track to complete our consolidation of FedEx operating companies. A lot of great work has already been done into one streamlined and simplified organization. I think two words are going to describe this move. One is efficiency and the other one is effectiveness. I think we are looking forward to the structure that actually moves us forward on both fronts. And I think at the end of the day, these transformation efforts will set us up to drive improved performance and profitability over the long term.

Speaker Change: Thank you for asking them and let me start and then John can add ons. This first of all we are well on track to.

Speaker Change: Bringing total fiscal year 'twenty for repurchases to $2 5 billion.

Speaker Change: While also paying our dividend in line with our previously stated capital return plan.

Speaker Change: To complete our consolidation of Fedex operating companies as a server in a lot of great work has already been done and into one streamline and simplify our organization I think towards going to describe this move.

Speaker Change: I'm also pleased to announce that our board of directors has authorized a new $5 billion share repurchase program, which augments the 600 million that remains available for repurchase under the $5 billion 2021 authorization.

Speaker Change: One the efficiency on the other one is effectiveness I think.

Speaker Change: We are we are looking forward to the structure of that it actually moves us forward on both fronts and.

Speaker Change: This reinforces our commitment to support long term stockholder returns.

Speaker Change: I think at the end of the day.

Speaker Change: Overall, I want to acknowledge and thank the entire team for their efforts and continuing to improve profitability in a challenging revenue environment.

Speaker Change: This transformation efforts will set us up to drive improved performance and profitability over the long term I'll give it to John to talk about the rest of it.

John Dietrich: I'll give it to John to talk about the rest of it. Yeah, thanks, Raj. And from a reporting standpoint, and we'll be providing more details regarding the new reporting structures as we go forward. But I think it's fair to say that we'll continue to break out both ground and express yield and volume by service as we currently do. And frankly, continue to provide sufficient data for you all to monitor the performance in those business segments.

Speaker Change: We have more work to do but I'm encouraged by the commitment and focus I've seen from our teams to advance our transformation and provide our customers and stockholders with even greater value.

John: Yes, Thanks Raj.

John: From a reporting standpoint, and we'll be providing more details regarding the new reporting structure as we go forward but.

John: But I think it's fair to say that we'll continue to break out both ground and express yield and volume by services. We currently do.

Speaker Change: With that let's open it up for questions.

Speaker Change: Thank you we will now begin the question and answer session.

John: And frankly, continuing to provide sufficient data for you all to monitor the performance in those business segments.

Speaker Change: To ask a question you May press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

David Vernon: The next question comes from David Vernon with Bernstein. Hey, good afternoon, everyone. And thanks for taking the question.

John: The next question comes from David Vernon with Bernstein.

David Vernon: Hey, good afternoon, everyone and thanks for taking the question to Raj in your prepared remarks, you talked about that.

Speaker Change: Please limit yourself to just one question.

Rajesh Subramaniam: So Raj, in your prepared remarks, you talked about the tricolor strategy and going after the premium air freight market. Could you talk a little bit more about about, you know, what that is? I guess I'd always been under the assumption that you guys were the premium part of the air freight market. And how does this realignment actually open up some some revenue that maybe you don't have access to today? Thank you, David.

Speaker Change: At this time, we will pause momentarily to assemble our roster.

David Vernon: The <unk> strategy and going after the premium airfreight market could you talk a little bit more about about what that is I guess I'd always under the assumption that you guys want the premium part of the airfreight market and how does this realignment actually open up some some revenue that may be you don't have access to today.

Speaker Change: Today's first question comes from Jordan <unk> with Goldman Sachs. Please go ahead.

Speaker Change: Hi.

Speaker Change: Thanks for the update on drive if I did the math right I think there is about three.

Speaker Change: $385 million or so left the final quarter of this fiscal year, maybe talk to where you think this money where the savings which buckets are going to go to surface Air G&A and I'm also just sort of curious on the surface side.

David Vernon: Thank you David.

Rajesh Subramaniam: Well, you know, I think I'm going to take a minute here to talk about Tricolor because I think it's a good opportunity. So bear with me for the time I'm going to take here.

David Vernon: I think I'm going to take a minute here to talk about Tri color because I think that's a good opportunity. So bear with me for the time I'm going to take here, Firstly tricolor as a fundamental redesign of our network to improve the utilization of assets, our ROIC see profitability and our operating margin.

Rajesh Subramaniam: Firstly, Tricolor is a fundamental redesign of our network to improve the utilization of assets, our ROIC, profitability, and our operating margin. And first and foremost, our overall capacity will be determined by the demand environment, and Tricolor will allow us to better flex our capacity to mass demand. Now within that capacity is when we'll break it into three networks, purple, orange, and white, we call it, and that cater to the different cohorts of traffic. The idea is to move the right product from the right network while reducing the cost to serve. The Purple Network will be a highly optimized and a leaner network designed to move international priority parcel volume that protects our value proposition in different geographies.

Speaker Change: Much of that is actually tied to express surface stuff. Thanks.

Speaker Change: So thank you Jordan for the question it's John.

David Vernon: And first and foremost our overall capacity will be determined by the demand environment tricolor will allow us to better flex our capacity to match demand.

Speaker Change: I'm not going to speak specifically to the number you raised with regard to the remainder of the year and drive except to say.

Speaker Change: That we are committed to the $1 8 billion for the fiscal year.

David Vernon: Now within that capacities, when we'll break it into three networks purple Orange and white as we call it and that cater to the different cohorts of profit.

Speaker Change: I think it's safe to assume that's spread across all of our operating companies and with regard to your question on surface.

The idea is to move the right products in the right network, while reducing the cost to serve.

Speaker Change: It's predominantly ground.

Speaker Change: But as we continue to migrate towards.

David Vernon: The purple network will be a highly optimized in a leaner network designed to move international priority parcel volume.

Speaker Change: Network <unk> and through our drive initiatives, there's a lot of complementary work that's being done together by the teams.

David Vernon: That protects our value proposition in different geographies now does network now becomes much more impartial centric.

Speaker Change: So those savings are being realized both at express and ground.

Rajesh Subramaniam: Now, this network now becomes much more parcel-centric, will have significantly better service, but also density, and that density will improve the revenue per position and revenue per flight. Now, turning to the orange network, that will cater to the premium freight traffic. And these are FedEx planes that will operate off-cycle from the purple system, which allows a few things. Firstly, it allows us the ability, once again, to maximize density and asset utilization. It also decongest hubs and improves service. But most importantly, it allows a truck-fly-truck model that reduces the cost to serve. And in this context, it should be noted that we are fully leveraging the existing capacity in our trucking networks in the U.S.

David Vernon: Have significantly better service, but also density and that density will improve the revenue proposition on revenue per flight.

Speaker Change: The next question is from Tom <unk> with UBS.

Speaker Change: Yes.

Speaker Change: Yes, good afternoon.

Speaker Change: Wanted to ask you a bit about the trajectory of the margin unexpressed.

David Vernon: Now turning to the Orange network that will cater to the premium freight traffic and these are.

Speaker Change: And in the February quarter was quite a bit better than expected and I'm. Just wondering how do we think about that as you go into fiscal 'twenty five I think two specific items, you did mentioned $1 $600 million improvement.

David Vernon: Fedex planes that will operate off cycle from the purple system, which allows us two things firstly.

David Vernon: Was this the ability once again to maximize density and asset utilization.

David Vernon: It also decongest hubs and improved service.

Speaker Change: Improvement in Europe that I think would go to express and just kind of visibility on that and also how we should think about postal.

David Vernon: But most importantly, it allows the truck flight truck model that reduces the cost to serve and in this context. It should be noted that we are fully leveraging the existing capacity in our trucking network in the U S and Europe.

You had some comments I think that's been characterized as a $400 million headwind. So is it reasonable to say that that $400 million kind of add back to the numbers. So anyway, just some broader comments on express and some of the bigger items. Thank you.

Rajesh Subramaniam: and Europe.

Rajesh Subramaniam: Prior to Fiscal 24, we haven't really moved any international freight shipments in our market-leading LTL network with FXF. And now, it's already begun to change, but in tricolor, it'll take full hold. So by doing so, we reduce the cost to serve, and we are able to target more of the premium air freight segment. Now, I'm going to coin a new term. Think of it as the, quote-unquote, global LTL segment. That's what this is about. Now, as you rightly asked, are we adding capacity to go up to low yield in traffic? The answer is no. We are going to gate the overall capacity by the premium demand.

David Vernon: Prior to fiscal 'twenty, four we Havent really moved any international freight shipments and our market, leading LPL network with FX F and now it's already begun to change, but then tricolor it'll take foothold here.

Speaker Change: Great. Thanks, Tom It's John again, yes, we're quite pleased with the progress we've made at express and the margin expansion.

David Vernon: So by doing so we reduced the cost to serve and we're able to target more of the premium air freight segment now I am going to coin a near term think of it as the core on core global LDL segment. That's what this is about.

Raj Subramaniam: As Raj mentioned this is all of our primary focus to continue that expansion and we're excited about the opportunities that lie ahead for us and drive.

Raj Subramaniam: With regard to Europe that will be a key focus area of ours and we are committed to the $600 million that you mentioned.

Now as you rightly asked is are we adding capacity to go up low yield and protect the answer's no.

Raj Subramaniam: And the postal service certainly as we're negotiating towards the deal if that deal were to materialize.

David Vernon: We are going to gauge the overall capacity by the premium demand should also be noted that 20% of the global air freight shipments approximately drive about 80% of the way.

Rajesh Subramaniam: It should also be noted that 20% of the global air freight shipments approximately drive about 80% of the weight, which is a primary target for freight forwarders. We're going to focus on the other 80% that will readily work with the model I described.

Raj Subramaniam: You would expect that it's mutually beneficial for both sides.

Raj Subramaniam: So we're looking forward to bringing that to closure as soon as possible.

David Vernon: As a primary target for freight forwarders.

Raj Subramaniam: And all of that will contribute to our ability to continue to expand our margins at our largest sector at express.

David Vernon: To focus on the other 80% that will readily work with the model I described.

Rajesh Subramaniam: So the white network then is primarily use of passenger belly capacity to move low-yielding e-commerce and deferred traffic. So these three networks working in concert with high technological orchestration is what we call Tricolor. Let me just reinforce again that it helps the baseline productivity, it improves our existing asset utilization, and makes the entire system more efficient. And we're going to manage the execution of Tricolor with the rigor of drive and to ensure success. So again, thanks for the question.

David Vernon: So the wide network then it's primarily use of passenger belly capacity to move lower yielding e-commerce and deferred traffic.

Speaker Change: The next question is from Jonathan Chappell with Evercore. Please go ahead.

Jonathan Chappell: Thank you good afternoon.

David Vernon: So these three networks working in concert with high technological orchestration is what we call Tri color, Let me just reinforce again.

Speaker Change: You had mentioned a competitive but rational market environment as it relates to pricing and yields we are several quarters into the demand downturn here and of course, there's been some competitive issues directly.

David Vernon: Helps the baseline productivity and improves our existing asset utilization and makes the entire system more efficient and we're going to manage the execution of tri color with the rigor of drive and to ensure success. So again, thanks for the question.

Speaker Change: And in your business as you look forward, if we continue to kind of bounce along this bottom on demand internationally, but I think more specifically to the United States.

Speaker Change: Pricing environment start to waver at all a bit do you really need a macro tailwind in before we can see maybe a stabilization of a reacceleration of yields.

Brian Ossenbeck: The next question comes from Brian Ossenbeck with J.P. Morgan. Please go ahead. Hey, thanks for taking the question. I just wanted to come back and maybe better understand the moving pieces for Express during the quarter. Obviously, quite a strong result, but there's oftentimes some impact from fuel. Incentive compensation, I think, was a bit of a tailwind here as that changed a little bit as well. So maybe, and then weather, you know, that was a pretty significant surprise, considering it was as difficult as you mentioned, Raj, but it seems like it really didn't affect the network.

Speaker Change: The next question comes from Brian Austin back with J P. Morgan. Please go ahead.

Brian Austin: Hey, Thanks for taking the question.

Jonathan Chappell: Hi, Jonathan Thanks for the question.

Speaker Change: Just wanted to come back and maybe better understand that.

Jonathan Chappell: I think from a competitive environment perspective, yes. It is competitive but I don't think that's particularly different in our industry, where various took in a competitive environment and the market does still quite rational to me when we look at the yield.

Speaker Change: The moving pieces for expressed during the quarter, obviously quite a strong result, but there's oftentimes as an impact from fuel incentive compensation I think it was a bit of a tailwind here has that changed a little bit as well. So maybe and then whether that was in.

Jonathan Chappell: For the team I am actually pleased with the discipline about the sales and the pricing organization. If you remove the fuel headwind across each one of our segments Express ground and Fedex freight we have kind of low single digit yield improvement at the base. So I think the team is continuing to execute on our revenue quality strata.

Speaker Change: Pretty significant so.

Jonathan Chappell: Apprise considering it was is typically as you mentioned Raj, but it seems like it really didn't affect the network. So maybe John if you can unpack some of the moving pieces and then Raj if you can comment on that.

John Dietrich: So maybe, John, if you can unpack some of the moving pieces, and then Raj, if you can comment on the durability of the network, if weather just isn't going to be as big of an impact going forward. Thank you. Yeah, thanks, Brian. I'll start with that last point, because I think it's worth repeating on the weather piece, which ties into some of our digital strategies and our ability to adapt to allow for what was substantially poor weather here in Memphis to be rerouted in a manner that had an immaterial impact on us. So as you'd expect, there was a lot of moving parts that expressed both positive and negative.

Speaker Change: The durability of the network, if whether it just isn't going to be as big of an impact going forward.

Jonathan Chappell: And from a momentum perspective, we do have some headwinds this year that will diminish next year, especially in the international market. If you think about calendar year 'twenty three from an airfreight perspective, the overall airfreight market yields decrease between 30 and 40% that is not going to repeat next year.

Speaker Change: Yeah, Thanks, Brian I'll start with that last point, because I think it's worth repeating on the weather piece, which ties into some of our digital strategies and our ability to adapt to allow for what was substantially poor weather here in Memphis to be rerouted and in a manner that had an immaterial.

Jonathan Chappell: And then of course from an international demand surcharge. It will continue to be a headwind in FY 'twenty five but less of a headwind in this fiscal year.

Speaker Change: <unk> impact on us so.

Speaker Change: As you'd expect there's there was a lot of moving parts at express both positive and negative.

John Dietrich: And the levers of drive, the focus on flight reductions. For example, we had 5% fewer flight hours in the quarter. And there are some additional benefits that flow from that on your cost side, because when you're not flying airplanes, you're able to avoid certain maintenance costs. The air ops team is doing an exceptional job of managing its cost for aircraft that are grounded, whether you're using what's called green time on engines that are available, limiting your inventory purchases and so forth. So it's really across the gamut, where we're seeing improvement there, all in the midst of some revenue headwinds that Raj and Bri talked about.

Speaker Change: And the levers of drive the focus on flight reductions for.

Speaker Change: The next question comes from Boscombe majors with Susquehanna.

Speaker Change: For example, we had 5% fewer flight hours in the quarter.

Speaker Change: Thanks for taking my question. So in June you'll complete the legal consolidation of express ground and services as part of the one Fedex effort.

Speaker Change: And there are some additional benefits that flow from that on your cost side, because when youre not flying airplanes, youre able to avoid certain maintenance costs.

Speaker Change: Can you give us a look at how that will change how you manage the business starting in July how it will change how you report your financials and operating stats in.

Speaker Change: <unk> team is doing an exceptional job of managing its cost for aircraft that are grounded whether youre using what's called Green time on engines that are available.

Speaker Change: Can you give us some assurance that we'll get a deep history of comparable financial and operating data to help track your progress as you get further into the operational side of the integration in 2025, six and seven thank you.

Speaker Change: Limiting your inventory purchases and so forth so it's really.

Speaker Change: Across the gamut, where we're seeing improvement there.

Speaker Change: All in the midst of some revenue headwinds as that Raj and Brie talked about so we're going to continue to keep our head down and focused on our costs.

John Dietrich: So we're going to continue to keep our head down and focused on our costs. One of the things I like to say, this is a journey, not a destination. And we still have a long way to go at Express. And it is our primary focus and look forward to keeping you posted on further improvements.

Speaker Change: Thank you for asking them and let me start and then John can add ons. This first of all we are well on track to complete our consolidation of Fedex operating companies as a server in a lot of great work has already been done and into one streamline and simplify our organization I think towards.

Speaker Change: One of the things I like to say this is a journey not a destination and we still have a long way to go at express and it is our primary focus and look forward to keeping you posted on further improvements and Brian I don't think I have much to add to what John has talked about.

Rajesh Subramaniam: And Brian, I don't think I have much to add to what John has talked about. You know, I think the idea that we use our latest and greatest in digital tools and the notion that we are now able to look at FedEx, you know, as a overarching network and able to move things helps us. Of course, you know, we got to see as the weather patterns, you know, that's very impossible to predict. But I'm just pleased with the work that we did this time around, and we'll continue to get better in this regard.

Speaker Change: Going to describe this move one efficiency other one was effectiveness I think.

Speaker Change: The idea that we use our latest and greatest in digital tools and the notion that we are now able to look at the Fedex.

Speaker Change: We are we are looking forward to the structure of that actually moves us forward on both fronts.

Speaker Change: The overarching network and be able to move things helps us of course, we go you're going to see as the weather patterns are another very impossible to predict but I'm just pleased with the work that we did this time around and we'll continue to get better in this regard.

Speaker Change: I think at the end of the day.

Speaker Change: This transformation efforts will set us up to drive improved performance and profitability over the long term I'll give it to John to talk about the rest of it.

John: Yes, Thanks Raj.

Speaker Change: Yes.

Jonathan Chappell: From a reporting standpoint, and we'll be providing more details regarding the new reporting structure as we go forward but.

Jeff Kauffman: The next question comes from Jeff Kauffman with Vertical Research Partners. Thank you very much and. thank you for the detail on Drive.

Speaker Change: The next question comes from Jeff Kauffman with vertical research partners.

Jeff Kauffman: Thank you very much.

Jonathan Chappell: But I think it's fair to say that we'll continue to break out both ground and express yield and volume by services. We currently do.

Speaker Change: Thank you for the detail on drive.

Speaker: Jenny, welcome.

Speaker: Look forward to working with you. Real quick, you know, the puck doesn't stay in one place. It's always moving around. And I think you're alluding to this with what you're doing with Drive and Tricolor. But I'm just kind of curious from your perspective, we announced this plan about a year-and-a-half ago, back at the analyst meeting almost two years ago. How has the network design and some of the drive goals when you're completed with this changed since you began this project? Well, I think we introduced Tricolor in the last conference call, and I think the design is just being put in place as we are speaking here.

Speaker Change: Jenny welcome look forward to working with you.

Jonathan Chappell: And frankly continue to provide sufficient data for you all to monitor the performance in those business segments.

Speaker Change: Real quick.

Speaker Change: The puck doesn't stay in one place, it's always moving around and I think you were alluding to this with with what Youre doing with drive in Tri color, but I'm just kind of curious from your perspective, we announced this plan about.

David Vernon: The next question comes from David Vernon with Bernstein.

David Vernon: Hey, good afternoon, everyone and thanks for taking the question to Roger in your prepared remarks, you talked about that.

Speaker Change: What year and a half.

No.

Speaker Change: Back at the analyst meeting almost two years ago.

David Vernon: The cycle, our strategy and going after the premium airfreight market could you talk a little bit more about about what that is I guess I'd always under the assumption that you guys want the premium part of the market and how does this realignment actually open up some some revenue that may be you don't have access to today.

Speaker Change: Has the network design and some of the drive goals. When you completed with this changed since you began this process.

Speaker Change: Well I think we introduced tricolor in the last conference call and I think this design is just being put in place as we as we are as we are speaking here.

David Vernon: Thank you David.

David Vernon: I think I'm going to take a minute here to talk about Tri color because I think that's a good opportunity. So bear with me for the time I'm going to say here firstly try colors, a fundamental redesign of our network to improve the utilization of assets, our ROIC see profitability and our operating margin.

Rajesh Subramaniam: And so in terms of the drive commitments, you know, we had originally talked about $4 billion by FY25, and less than 50% in FY24, as we will hit those numbers, right, you know, for FY24 and on track for FY25. And again, the other part of it, of course, is Network 2.0, which we said $2 billion by FY27, and that's underway. So with the focus on making sure that we have structural cost reductions, we have network redesigns with the whole, you know, FedEx portfolio in play, and the idea that we are moving forward on our digital tools, all three are working.

Speaker Change: And.

Speaker Change: So in terms of the drive commitments, we had originally talked about $4 billion by FY 'twenty, five and one less than 50% in FY 'twenty for railroad as we will hit those numbers.

Speaker Change: For FY 'twenty, four and on track for a 525.

David Vernon: And first and foremost our overall capacity will be determined by the demand environment tricolor will allow us to better flex our capacity to match demand.

Speaker Change: And again the other part of it of course network toward auto, which we said $2 billion by FY 'twenty, seven and Thats underway, so with the with.

David Vernon: Now within that capacities, when we'll break it into three networks purple Orange and white as we call it and that cater to the different cohorts of profit.

Speaker Change: With the focus on making sure that we have structural cost reductions, we have network redesigns with the whole.

David Vernon: The idea is to move the right products in the right network, while reducing the cost to serve.

Speaker Change: Fedex portfolio in play.

David Vernon: The purple network will be a highly optimized in a leaner network designed to move international priority parcel volume.

Speaker Change: And the idea that we are moving forward on our digital tools. All three are working and I think.

John Dietrich: And I think, you know, we got work to do, but we've made some good progress.

David Vernon: That protects our value proposition in different geographies now does network now becomes much more impartial centric.

Speaker Change: We've got work to do but as we made some good progress John is going to add more to what I just said.

John Dietrich: John's going to add more to what I just said. Yeah, I think what I would add to that as well is to your comment about a kind of changing environment. The teams meet weekly on this, and there are some programs that are delivering more than we expected, and there are some programs that are delivering less than we expected, but we're always looking to fill the pipeline as well on additional opportunities. And that's an ongoing project, and that speaks to drive being part of our culture going forward. That's not going to stop, and we're going to adapt to a changing environment, and I think that will help us as we move forward.

Speaker Change: I think what I would add to that as well as to your comment about kind of changing environment.

David Vernon: Have significantly better service, but also density and that density will improve the revenue proposition of revenue per flight.

Speaker Change: The teams meet weekly on this and there are some programs that are delivering more than we expected and there are some programs that are delivering less than we expected.

David Vernon: Now turning to the Orange network that will cater to the premium freight traffic and these are Fedex planes that will operate off cycle from the purple system, which allows us two things firstly.

Speaker Change: But we're always looking to fill the pipeline as well on additional opportunities and that's an ongoing.

Speaker Change: Project and that speaks to drive being part of our culture going forward, that's not going to stop and we're going to adapt to a changing environment.

David Vernon: It allows us the ability once again to maximize density and asset utilization.

David Vernon: It also decongest hubs and improved service.

That will help us as we move forward.

Kenneth Hoexter: The next question comes from Ken Hoexter with Bank of America. Hey, great. Good evening.

Speaker Change: The next question comes from Ken <unk> with Bank of America.

David Vernon: But most importantly, it allows the truck flight truck model that reduces the cost to serve and in this context should be noted that we are fully leveraging the existing capacity in our trucking network in the U S and Europe.

Ken <unk>: Hey, great good evening.

John Dietrich: So, Raj and Tima, I guess I love the results in terms of the speed here at Express, but I'm confused a bit by the messaging. Last quarter, you talked about seasonal declines at Express and what occurred from Express going down to, you know, what should be maybe near break-even given the seasonal moves, yet it was up, you know, so significantly, 130 basis points year-over-year. Was there a massive shift in the drive or other programs or your speed of execution? Because it sounds like from what you're saying on the targets, nothing's really changed. But I'm just wondering what shifted intra-quarter so much that we're now seeing this quick of an improvement?

Ken <unk>: So Raj and team I guess I loved the results in terms of the speed here at express, but I'm confused a bit by the messaging last quarter, you talked about seasonal declines at express.

Ken <unk>: And what occurred from express going down to which should be maybe near breakeven given the seasonal moves yet it was up so significantly Andre 30 basis points year over year was there a massive shift in the drive our other programs or your speed of execution, because it sounds like from what Youre, saying on the targets nothing has really changed but I'm just wondering.

David Vernon: So by doing so we reduced the cost to serve and we're able to target more of the premium air freight segment now I'm going to decline and you think of it as the core on core Global LDL segment. That's what this is about.

Ken <unk>: What shifted intra quarter. So so much that we're now seeing this quick of an improvement and then just I'm sorry, just a slight clarification did you say, Canada was about to be rolled out because I thought you had already said that with Hawaii and Alaska, Canada was done so just maybe I wanted to clarify that thanks.

David Vernon: Now as you rightly asked is are we adding capacity to go up a loyal and perfect answers no.

Brie Carere: And then just, I'm sorry, just a side clarification. Did you say Canada was about to be rolled out? Because I thought you had already said that with Hawaii and Alaska, Canada was done. So, I just maybe I want to clarify that.

David Vernon: We are going to date, the overall capacity by the premium demand should also be noted that 20% of the global air freight shipments approximately drive about 80% of the weight.

John Dietrich: Thanks. So, hey, Ken, it's John. I'll start with the last one. It's about to be rolled out. It has not been completed, and Brie can talk more about that in a minute. But Q3, as I mentioned earlier, was a combination of things. We saw, while the revenue was soft, we were focused on quality revenue. The cost controls were solid and strong, and there were some other levers that were alluded to earlier. As you can see, varial comp, for example, is down. So that was a contributor. But all these things taken together resulted in us and our focus on improving our results for Q3.

John: So hey, Ken it's John I'll start with the last one it's about to be rolled out. It has not been completed and Bruce can talk more about that in a minute.

David Vernon: As a primary target for freight forwarders.

David Vernon: Going to focus on the other 80% that will readily work with the model I described.

Ken <unk>: But Q3 as I mentioned earlier was a combination of things.

John: We saw wild.

David Vernon: So the wide network, then is primarily use of passenger belly capacity to move lower yielding e-commerce and deferred traffic. So these three networks working in concert with high technological orchestration is what we call Tri color, Let me just reinforce again.

While the revenue was software focused on quality revenue the cost controls.

John: We're.

John: Solid and strong and there were some other levers that were alluded to earlier as you can see variable comp. For example for example was down so that was a contributor but all these things taken together resulted in us and our focus on improving our results.

John: For Q3.

Brie Carere: Yep, and Ken, I'm just happy to clarify from a Network 2.0 perspective, the Canada plan has not changed, Alaska and Hawaii are done, and we are beginning the rollout of the integration in Canada that will begin this April, and we will be done before peak, and it's on track.

John: Yes, and Ken I'm, just happy to clarify from a network Kiddo perspective, the Canada plan has not changed Alaska and Hawaii are done and we are beginning the rollout of the integration in Canada that will begin this April and we will be done before peak and it's on track.

Speaker Change: The next question comes from Brian Austin back with J P. Morgan. Please go ahead.

Brian Austin: Hey, Thanks for taking the question.

Brandon Oglenski: The next question comes from Brandon Oglenski with Barclays. Hi, good afternoon and thanks for taking my question.

Brandon: The next question comes from Brandon <unk> with Barclays.

Brian Austin: Just wanted to come back and maybe better understand that.

Brian Austin: The moving pieces for expressed during the quarter, obviously quite a strong result, but theres often times has some impact from fuel incentive compensation I think it was a bit of a tailwind here has that changed a little bit as well. So maybe and then whether that was a pretty significant surprise considering it was is typically as you mentioned.

Brandon: Hi, good afternoon, and thanks for taking my question.

Rajesh Subramaniam: Maybe if we can follow up there on Network 2.0, Raj, I think you mentioned you've made some management changes on both ground and express surface operations in the U.S. Can you talk maybe a little bit more about that and how that plays into long-term integration? Yeah, thank you, Brandon. I think, first of all, Network 2.0 is on track. Let me just take a step back here. You'll recall that we said we plan to deliver $2 billion in savings by the end of Fiscal 27, and we're taking that measured and deliberate approach. And as we just rolled out our new leadership structure in the United States, and it's obviously a much more streamlined structure and a much more effective structure, and essentially with the goal of putting one truck and one neighborhood design into action.

Speaker Change: Maybe if we can follow up their network to Raj.

Speaker Change: Raj I think you mentioned you've made some management changes.

Speaker Change: On both ground and express surface operations in the U S. Can you talk maybe a little bit more about that and how that plays into long term integration.

Raj Subramaniam: Raj, but it seems like it really didn't affect our network. So maybe John if you can unpack some of the moving pieces and then Raj if you can comment on.

Speaker Change: Yeah. Thank you Brandon I think.

Speaker Change: The first of all network to <unk> is on track and we just take a step back here, you'll recall that we prevent reserve funds delivered $2 billion in savings by the end of fiscal 2007.

Raj Subramaniam: The durability of the network, if whether it just isn't going to be as big of an impact going forward.

Speaker Change: Taking that measured and deliberate approach.

Speaker Change: And as we've just rolled out our new leadership structure.

Speaker Change: In the United States, and it's obviously a much more streamlined structure.

Speaker Change: And much more effective structure and essentially with the goal of.

Raj Subramaniam: Cereal impact on us so.

Raj Subramaniam: As you would expect there is there was a lot of moving parts at express both positive and negative.

Speaker Change: Putting one truck in one neighborhood design interaction.

Rajesh Subramaniam: We are encouraged by the early results we're seeing in the initial rollout as well. So far, Network 2.0 model on the whole has achieved approximately a 10% reduction in P&D costs and maintained very strong service levels. As we become more tech-enabled in this regard, we'll deliver even greater improvements. And as we have already talked about, we are focused on implementation of Canada before peak. And I also have to say that I'm very excited about Network 2.0 from a service perspective because it'll drive a better customer pickup experience. So we are on our way, on track, and again, some ways to go.

Speaker Change: We are encouraged by the early results, we're seeing in the initial Aurora as well so far.

Raj Subramaniam: And the levers are drive the focus on flight reductions.

Raj Subramaniam: For example, we had 5% fewer flight hours in the quarter.

Speaker Change: <unk> auto model on the whole is up approximately 10% reduction in BMD cost and maintain very strong service levels as we become more tech enabled in this regard will deliver even greater improvements and as we have already talked about we are focused on implementation of Canada for peak and <unk>.

Raj Subramaniam: And there are some additional benefits that flow from that on your cost side, because when you are not flying airplanes, youre able to avoid certain maintenance costs.

Raj Subramaniam: <unk> team is doing an exceptional job of managing its cost for aircraft that are grounded whether youre using what's called Green time on engines that are available.

Speaker Change: Also I have to say that I'm very excited about net book put auto from a service perspective, because it will drive a better customer pickup experience. So.

Raj Subramaniam: Limiting your inventory purchases and so forth so it's really.

Speaker Change: We are on our way on track and again some ways to go.

Raj Subramaniam: Across the gamut, where we're seeing improvement there.

Scott Group: The next question is from Scott Group with Wolf Research. Hey, thanks afternoon. So, John, this year is a billion aid of drive savings. And you've talked about 900 million of offset, so about 900 million of actual profit.

Speaker Change: All in the midst of some revenue headwinds as that Raj and Brie talked about so we're going to continue to keep our head down and focused on our costs.

Speaker Change: The next question is from Scott Group with Wolfe Research.

Speaker Change: Hey, Thanks afternoon. So.

Speaker Change: John This year is a $1 billion of drive savings and you've talked about $900 million of offset so about $900 million of actual profit.

Speaker Change: One of the things I'd like to say this is a journey not a destination and we still have a long way to go at express and it is our primary focus and look forward to keeping you posted on further improvements and Brian I don't think I have much to add to what John has talked about I think the idea that we use our latest and greatest in digital tools and the notion that.

John Dietrich: As we think about fiscal 25, do you think the actual profit improvement should be closer to the $2.2 billion of drive savings? Or do you think there's another year of material offsets? to that drive in fiscal 25.

Speaker Change: As we think about.

Speaker Change: Fiscal 'twenty five do you think the.

Speaker Change: Actual profit improvement should be closer to the $2 2 billion of drive savings or do you think there is another year of material.

Speaker Change: We are now able to look at the Fedex.

Speaker Change: The overarching network and be able to move things helps us of course, we're going to you're going to see as the weather patterns are another very impossible to predict but I'm just pleased with the work that we did this time around and we'll continue to get better in this regard.

Speaker Change: Offsets to that drive in fiscal 'twenty five and then just separately just no one's asked about ground, yet and it's by far the biggest part of the business. So if I can just ask one.

Scott Group: And then just separately, just no one's asked about ground yet and it's by far the biggest part of the business. So if I can just ask one, the margins, 12% this year, you think there's further margin improvement to go at ground? Thank you. Thanks, Scott. And let me start by saying on that 2.2, that's certainly our goal, to have that all flow through. But we have to be realistic and understand that a lot of the pressures that we're seeing today are expected to continue for a while. And while we're going to continue to focus on those things within our control, there are certain things outside of our control.

Speaker Change: The margins.

Speaker Change: 12% this year.

Speaker Change: Yes.

Do you think there is further margin improvement to Golar ground. Thank you.

Speaker Change: The next question comes from Jeff Kauffman with vertical research partners.

Speaker Change: Sure.

Speaker Change: Thanks Scott.

Jeff Kauffman: Thank you very much.

Speaker Change: And let me start by saying on that $2. Two that's certainly our goal to have that all flow through.

Jeff Kauffman: Thank you for the detail on drive.

Jenny Hollander: Jenny welcome look forward to working with you.

Speaker Change: But we have to be realistic and understand that a lot of the pressures that we're seeing today are expected to continue for a while.

Speaker Change: Real quick.

Speaker Change: And while we're going to continue to focus on those things within our control are there are certain things with our outside of our control and so our goal is to have as much pass through to the bottom line as possible and we look forward to keeping you up to speed on that including when we next talk in June.

John Dietrich: And so our goal is to have as much pass through to the bottom line as possible.

What year and a half.

John Dietrich: And we look forward to keeping you up to speed on that, including when we next talk in June.

Speaker Change: No.

Speaker Change: Back at the analyst meeting almost two years ago.

John Dietrich: With regard to ground, exceptional story, exceptional performance from the team. I believe those margins are sustainable, and there's still a number of projects in the pipeline that allow us to continue to grow and expand that business in those margins. So again, that's going to be our focus as well.

Speaker Change: Has the network design and some of the drive goals. When you are completed with this changed since you began this process.

Speaker Change: With regard to ground.

Speaker Change: Exceptional story expect exceptional performance from the team.

Speaker Change: I believe those margins are sustainable and there is still a number of projects in the pipeline that allow us to continue to grow and expand that business and those margins. So again thats going to be our focus as well.

Speaker Change: Well I think we introduced tricolor in the last conference call and I think this design is just being put in place as we as we are speaking here.

Helane Becker: The next question comes from Helane Becker with T.D. Cohen. Thanks very much, Operator, and hi, team. I have, I guess, two questions.

Speaker Change: The next question comes from Helane Becker with TD Cohen.

Speaker Change: And.

Speaker Change: So in terms of the drive commitments, we had originally talked about $4 billion by FY, 'twenty, five and less than 50% in FY 'twenty for railroad as we will hit those numbers.

Helane Becker: Thanks, very much operator.

Helane Becker: Hi team I have.

Speaker Change: I guess two questions. One is as part of the whole redesign of the network in the business and collapsing everything into one have you thought about shifting to a calendar year rather than staying on our may fiscal year and my second question is maybe for Raj.

Rajesh Subramaniam: One is, as part of the whole redesign of the network and the business and collapsing everything into one, have you thought about shifting to a calendar year rather than staying on a May fiscal year? And my second question is maybe for Rajesh. You know, a lot of investors push back to me about the business that, you know, the way you're structuring the business, and I noticed the stock aftermarket was up quite a lot after, you know, the Why do you think investors are so skeptical of your business plan and aren't willing to give you the credit that maybe you deserve for the changes you've made as speedily as you've made them?

Speaker Change: For FY 'twenty, four and on track for a 525.

Speaker Change: And again the other part of it of course is the network toward auto, which we said $2 billion by FY 'twenty, seven and Thats underway, so with the with.

Speaker Change: A lot of investors pushback to me about the business that in the way you're structuring the business and I noticed the stock aftermarket was up quite a lot. After the earnings release, what why do you think investors are skeptical of your business plan and arent willing to give you the <unk>.

Speaker Change: With the focus on making sure that we have structural cost reductions, we have network redesigns with the whole.

Speaker Change: Fedex portfolio in play.

Speaker Change: And the idea that we are moving forward on our digital tools. All three are working and I think.

Speaker Change: That may be you deserve for the changes you've made as speedily as you've made them.

Speaker Change: We've got work to do but we've made some good progress John is going to add more to what I just said.

Speaker Change: I think what I would add to that as well as to your comment about kind of changing environment. The teams meet weekly on this and there are some programs that are delivering more than we expected and there are some programs that are delivering less than we expected.

Rajesh Subramaniam: Thanks, Helane.

Brian Austin: Thanks, Helane I'll start on the first part on the calendar year.

Brie Carere: I'll start on the first part, on the calendar year. You know, as you'd expect, with everything going on, there's legal and accounting exercises that need to take place to get us through this next period, including a June 1 date of 1 FedEx. But I can share, it's certainly on my radar to migrate towards that, and we'll keep you posted on developments towards that. And Helane, as far as your second question, all I can say is that we, as a team, are very much convinced that we have a unique story at FedEx here. That the opportunities that we have, one in the industry is one thing, but within the industry, we are a unique opportunity because of the strategies that we have deployed.

Speaker Change: As you would expect with everything going on there is legal and accounting.

Speaker Change: Exercises that need to take place to get us through this next period, including June one date of one Fedex.

Speaker Change: But we're always looking to fill the pipeline as well on additional opportunities and that's an ongoing.

Speaker Change: But I can share it.

Speaker Change: Certainly on my radar to migrate towards that and we will keep you posted.

Speaker Change: Project and that speaks to drive being part of our culture going forward, that's not going to stop and we're going to adapt to a changing environment and I think that will help us as we move forward.

Speaker Change: On developments towards that.

Speaker Change: And then as far as your second question. All I can say is that we as a team are very much convinced that we have a unique story in Fedex here.

Speaker Change: The next question comes from Ken <unk> with Bank of America.

Speaker Change: The opportunities that we have one in the industry is one thing, but within the industry. We are rather unique opportunity because of the strategies that we've deployed.

Ken: Hey, great good evening.

Ken: So Raj and team I guess I loved the results in terms of the speed here at express, but I'm confused a bit by the messaging last quarter, you talked about seasonal declines at express.

Rajesh Subramaniam: We started moving early than anybody else. We are performing better than our competition, both on the top and the bottom line, and we have a longer runway because of the opportunities we have identified. And so, we will try to educate as many people as we possibly can on our strategy and where we are, but we are just seeing the early stages of what's possible at FedEx.

Speaker Change: We started moving early than anybody else, we are performing better than our competition competition. Both on the top on the bottom line and we have a long runway because of the opportunities we have identified and so.

Ken: And what occurred from express going down to what should be maybe near breakeven given the seasonal moves yet it was up so significantly under 30 basis points year over year was there a massive shift in the drive our other programs or your speed of execution, because it sounds like from what Youre, saying on the targets nothing has really changed but I'm just wondering.

Speaker Change: Yes, we will try to educate as many people as we possibly can on our strategy and.

Speaker Change: And where we are but we are just seeing the early stages of what's possible at Fedex.

Rajesh Subramaniam: Any one particular call can sometimes throw you off, but the long-term strategy is sound, and we all believe in it, and it's going to be a good run in the next three or four years.

Ken: What's shifted intra quarter. So so much that we're now seeing this quick of an improvement and then just I'm sorry, just aside clarification did you say, Canada was about to be rolled out because I thought you had already said that with Hawaii and Alaska, Canada was done so just maybe I wanted to clarify that thanks.

Speaker Change: Any one particular quarter or sometimes just kind of throw you off but the long term strategy is sound and we all believe in it and there's going to be as good as it's going to be good run in the next three four years.

Ravi Shanker: The next question is from Ravi Shanker with Morgan Stanley. Thanks everyone. Apologies if I missed this, but regarding the USPS contract, when do you expect that to reach fruition? Is that something that happens in FY24-25? And also can you share how much of the volume has come off already? And how much would you dimension that net with the new contract ends up being? Thank you.

Speaker Change: The next question is from Ravi Shanker with Morgan Stanley.

John: So hey, Ken it's John I'll start with the last one it's about to be rolled out. It has not been completed and Bruce can talk more about that in a minute.

Speaker Change: Thanks, a lot for anyone.

Apologies if I missed this but.

Speaker Change: Regarding the USPS contract kind of when do you expect that to reach fruition.

John: But Q3 as I mentioned earlier was a combination of things.

Speaker Change: Is that something that happened in FY 'twenty four 'twenty five and also can you share how much of the volume has come off already.

Speaker Change: We saw.

Speaker Change: While the revenue was software focus on quality revenue the cost controls.

Speaker Change: How much would you dimension.

Speaker Change: We're.

Speaker Change: Net net with the new contract ends up being thank you.

Speaker Change: Solid and strong and there were some other levers that were alluded to earlier as you can see variable comp. For example for example was down so that was a contributor but all.

Speaker Change: Yeah.

Brie Carere: Hi Ravi, thanks for the question, it's Brie. From a USPS contract, I really can't say more than I already said earlier, you know, in short, we are feeling very positive about the negotiations, both parties are working eagerly, we're at the table. I think we are days or weeks away from knowing if we will have a contract, not months. And as we have shared previously, their current contract ends on September 29. So we will know very, very soon. And you know, I'm certainly not at liberty to talk about the details of a future contract.

Gary: Hi, Ravi Thanks for the question Gary.

Speaker Change: USPS contract I really can't say more than I already said earlier.

Speaker Change: All these things taken together resulted in <unk>.

Speaker Change: And our focus on improving our results.

Speaker Change: Sure we are feeling very positive about the negotiation both parties are working eagerly we're at the table.

Speaker Change: For Q3.

Speaker Change: Yes, and Ken I'm, just happy to clarify for the network Ciudadano perspective, Canada plan has not changed Alaska and Hawaii are done.

Speaker Change: I think we are days or weeks away from knowing if we will have a contract not months.

Speaker Change: And we are beginning the rollout of the integration in Canada that will begin this April and we will be done before peak and it's on track.

Speaker Change: As we have shared previously their current contract.

Speaker Change: On September 29th so.

Speaker Change: We will know very very soon and certainly not at Liberty to talk about the details of our future contract.

Speaker Change: The next question comes from Brandon <unk> with Barclays.

Brandon: Hi, good afternoon, and thanks for taking my question.

Stephanie Moore: The next question is from Stephanie Moore with Jeffreys. Hi, good evening, thank you for the question.

Speaker Change: The next question is from Stephanie <unk> with Jefferies.

Speaker Change: Maybe if we can follow up their network to Plano.

Speaker Change: Hi, Good evening. Thank you for the question.

Speaker Change: Raj I think you mentioned you've made some management changes on both ground and express surface operations in the U S. Can you talk maybe a little bit more about that and how that plays into long term integration.

John Dietrich: I appreciate the incremental color on Network 2.0 and I was hoping you could maybe provide a little bit of color in terms of some of the investments that have to be made in order to execute on the integration, particularly as you enter or you begin the execution on a much larger market like Canada. Any color in terms of maybe lessons learned from Alaska and Hawaii integration and then what investments we should expect to see as you implement it in Canada. Thank you. Yeah, thanks, Stephanie. It's John. Yeah, certainly, there's going to be some investment required when you're consolidating facilities, particularly sort facilities.

Speaker Change: I appreciate the incremental color on network cute auto.

Speaker Change: I was hoping you could maybe provide a little bit of color in terms of some of the investments that have to be made in order to execute on the integration, particularly at <unk> and the execution of a much larger market like Canada.

Speaker Change: Yeah. Thank you Brandon I think.

Speaker Change: The first of all network <unk> is on track and we just say.

Speaker Change: Any color in terms of maybe.

Speaker Change: Step back here, you'll recall that we plan to deliver $2 billion in savings by the end of fiscal 2007 hundred and we're taking that measured and deliberate approach.

Speaker Change: Lessons learned from your Alaska and Hawaii.

Speaker Change: And then what investments you should expect to see as you implemented in Canada. Thank you.

Speaker Change: And as we've just rolled out our new leadership structure.

John: Yes, Thanks, Stephanie it's John Yes, certainly there is going to be some investment required when you're consolidating facilities, particularly sort facilities.

Speaker Change: In the United States, and it's obviously, a much more streamlined structure and much more effective structure and essentially with the goal of putting one truck in one neighborhood design interaction.

John Dietrich: But there's also upside in that you're able to reduce your facility's footprint along the way. So that will involve some, certainly some planning and processes, analysis and all that. But we're excited, actually, about the end game here. And that is our overall footprint will far, the benefits of that will far exceed the investment and contribute to a really efficient network. And honestly, from lessons learned, I think the team feels really good about their execution to date. To Rajesh's point, we have seen kind of the P&D benefits that we anticipated, as well as we've seen the team be able to execute from a service perspective.

John: But there is also upside in that you are able to reduce your facilities footprint along the way.

John: So that will involve some certainly some planning and processes.

Speaker Change: We are encouraged by the early results, we're seeing in the initial rollout as well as so far network toward auto model on the whole is up approximately 10% reduction in <unk> cost and maintain very strong service levels as we become more tech enabled in this regard will deliver even greater improvements and as we have.

John: Analysis, and all that but we're excited actually about the end game here and that is our overall footprint will will far.

John: The benefits of that will far exceed the investment and contribute to a really efficient network.

John: And honestly from lessons learned I think the team feels really good about their execution to date to Roger's point, we have seen kind of the PND benefits that we anticipated as well as we've seen the team be able to execute from a service perspective, I will say, we are being very disciplined we're being very methodical and we are giving.

Speaker Change: <unk> already talked about we're focused on implementation of Canada for peak.

Speaker Change: I'm also happy to say that I'm very excited about net book put auto from a service perspective, because it will drive a better customer pickup experience. So we're on our way on track and again some ways to go.

John Dietrich: I will say we are being very disciplined. We're being very methodical, and we are giving customers the advance notice as we go into market. That was one piece of feedback for customers, even though we anticipate being able to deliver the same level of service with the combined organization as we are as the individual. They do want that notification, and so we, of course, are giving customers that advance notification. And to Rajesh's point on the positive, I cannot emphasize how important that single pickup is to our small customer segment. This has been the only feature gap we had to UPS in that segment, and we are about to close it, so I'm pretty excited about that.

Speaker Change: The next question is from Scott Group with Wolfe Research.

John: Customers the advance notice as we go into market that was one piece of feedback for customers, even though we anticipate being able to deliver the same level of service with the combined organization as we are as the individual they do want that notification and so we of course are getting customers that advance notification and to Roger's point on the positive.

Speaker Change: Hey, Thanks afternoon, so <unk>.

Speaker Change: John This year is the $1 billion of drive savings and you've talked about $900 million of offset so about $900 million of actual profit.

Speaker Change: As we think about.

Speaker Change: Fiscal 'twenty five do you think the.

Speaker Change: I cannot under.

Speaker Change: Emphasize how important that single pickup is to our small customer segments. This has been the only feature gap we had <unk> in that segment and we are about to close that so I'm pretty excited about that.

Actual profit improvement should be closer to the $2 2 billion of drive savings or do you think there is another year of material offsets to that drive in fiscal 'twenty five and then just separately just no one's asked about ground, yet and it's by far the biggest part of the business. So if I can just ask one.

Bruce Chan: The next question is from Bruce Chan with Stiefel.

Speaker Change: The next question is from Bruce Chan with Stifel.

Brie Carere: Hey Raj, Brie, John and Jenny, welcome to The Mix here. I don't know if you've really talked about it, but we've been hearing that you've had some pretty material service improvements, especially at ground over the last, you know, call it year or so. And that's, you know, despite the cost savings push, can you maybe just talk about that a little bit? You know, where are the service levels today? What are the levers that you're pulling? And then, you know, what kind of opportunity do you have to drive core pricing as a result of that?

Speaker Change: Hey, Raj breach of unearned Jenny welcome to the mix here.

Speaker Change: The margins.

Speaker Change: 12% this year.

Speaker Change: Do you think there is further margin improvement to go at ground. Thank you.

Bruce Chan: I don't know if you've really talked about it but we've been hearing that you've had some pretty material service improvements, especially at ground over the last call it year or so and thats. Despite the cost savings push can you maybe just talk about that a little bit in a word the service levels today, what are the levers that youre pulling and then what kind of opportunity do you have to drive core pricing.

Speaker Change: Yes.

Speaker Change: Thanks Scott.

Speaker Change: And let me start by saying on that $2. Two that's certainly our goal to have that all flow through.

Speaker Change: But.

Speaker Change: We have to be realistic and understand that a lot of the pressures that we're seeing today are expected to continue for a while.

Speaker Change: As a result of that thank you.

Brie Carere: Thank I love this question. John Smith and Scott Ray are crushing it. When we went back and looked at our Q4, the toughest quarter, I should say Q4 calendar year, the toughest quarter to deliver awesome service. Not only are we faster, I am quite confident we, on those higher standards from a delivery service perspective, we also had better reliability.

Speaker Change: I Love this question.

Speaker Change: John Smith, and Scott Ray are crushing it.

Speaker Change: When we went back and looked at our Q4 are the toughest quarter to delight I should say Q4 calendar year. The test this quarter to deliver awesome service not only are we faster I am quite confident.

Speaker Change: When we next talk in June.

Speaker Change: With regard to ground exceptional story expect exceptional performance from the team.

Speaker Change: And those higher standards from a delivery service perspective, we also had better reliability how are they doing this it's discipline day in and day out execution.

Brie Carere: How are they doing this? It's discipline. It's day in and day out execution. We look at our service metrics every single morning. We talk about net promoter score every week at our revenue management committee. And to Raj's coverage on the integrated leadership team now, the service organization, we absolutely expect to extend that across the entire network. And I just could not be more appreciative of our operators and how well they're doing.

Speaker Change: Look at our service metrics every single morning, we talk about net promoter score every week and our revenue management Committee.

Helane Becker: The next question comes from Helane Becker with TD Cohen.

Helane Becker: Thanks, very much operator.

Speaker Change: <unk> coverage on the integrated leadership team now with the service organization, we absolutely expect to extend that across the entire network and I just could not be more appreciative of our operators and how well they're doing and I wanted to answer that question because she holds their feet to the fire every single day. So I'm glad that you heard the answer.

Speaker Change: Hi team I have.

Speaker Change: Two questions one is.

Speaker Change: As part of the whole redesign of the network in the business and collapsing everything into one have you thought about shifting to a calendar year rather than staying on our may fiscal year and my second question is maybe for Raj.

Brie Carere: Yeah, I wanted Brie to answer that question because she holds their feet to the fire every single day. So I'm glad that you heard that answer directly from Brie.

Speaker Change: <unk> from <unk>.

Conor Cunningham: The next question is from Conor Cunningham with Melius Research. Everyone, thanks for getting me in.

Speaker Change: The next question is from Conor Cunningham with Melius research.

Conor Cunningham: Hi, everyone. Thanks for getting me in I was hoping you could talk about the opportunity you see just with the E. Commerce return business, you've obviously been a big player there.

Speaker: I was hoping you could talk about the opportunity you see just with the e-commerce return business. You've obviously been a big player there. But there's been a lot of changes to the network. Is that now a larger focus? The reason why I asked, obviously, there's been a press report about you reengaging with Amazon. So just any thoughts there would be helpful. Thank you. Sure, happy to. I think we've got the best returns portfolio in the market. When you look at our retail coverage, as well as our transportation solution, it is best in class. And when we looked at our January numbers, the FedEx ground returns portfolio did see some healthy growth.

Conor Cunningham: There's been a lot of changes in the network is that now a larger focus the reason why I ask obviously theres been a press report about you reengage with Amazon. So just any thoughts there would be helpful. Thank you.

Speaker Change: The credits that maybe you deserve for the changes you've made as speedily as you've made them.

Speaker Change: Sure Happy to I think we've got the best returns portfolio in the market. When you look at our retail coverage as well as our transportation solution. It is best in class and when we looked at our January numbers. The Fedex ground returns portfolio did see some healthy growth.

Speaker Change: Thanks, Helane I'll start on the first part on the calendar year.

Speaker Change: As you would expect with everything going on there is legal and accounting.

Speaker Change: Exercises that need to take place to get us through this next period, including June one date of one Fedex.

Speaker Change: Layer that on with the new announcement of our <unk> platform.

Brie Carere: You layer that on with the new announcement of our FDX platform, we are going to be the only provider that has not only the physical capabilities, but a very comprehensive digital capability. And what do I mean by that? We are going to be able to help all retailers, brands and merchants process their returns on their websites, manage their exchanges, manage the inventory, integrate their branded tracking and communications to customers. It's a really powerful offering. As I mentioned earlier, we started to preview this with some customers. We've got some pretty big names and what we're calling our private preview.

Speaker Change: But I can share it.

Speaker Change: Certainly on my radar to migrate towards that and we will keep you posted.

Speaker Change: Are going to be the only provider that has not only the physical capabilities, but a very comprehensive digital capability and what do I mean by that we are going to be able to help all retailers brands and merchants process. Their returns on their web site managers manage their exchanges manage the <unk>.

Speaker Change: On developments towards that.

Speaker Change: And then as far as your second question. All I can say is that we as a team are very much convinced that we have a unique story in Fedex here.

Speaker Change: The opportunities that we have one in the industry is one thing, but within the industry. We are rather unique opportunity because of the strategies that we've deployed.

Speaker Change: Tori integrate their branded tracking and communication to customers. It's a really powerful offering as I mentioned earlier, we started to preview this with some customers. We've got some pretty big names and what we're calling a private preview and I look forward to sharing more results. Once we do the full launch later in the fall.

Brie Carere: And I look forward to sharing more results once we do the full launch later in the month.

Speaker Change: <unk>.

Brie Carere: I think I'll stop there. I'm enthusiastic about this. No. I'll just say this much. When you integrate with these customers, even I can program. And it's a no-code environment. I can set up the detention policy. So if I can do that, anyone can do it.

Speaker Change: No.

Speaker Change: I think I'll stop there I haven't <unk> about that no I would just say this much when you're in an integrated and those customers, even hi, Jim program and it is a no code environment I can set up that trumps policies. So if I can do that anyone can do it.

Speaker Change: Yes, we will try to educate as many people as we possibly can on our strategy and.

Speaker Change: And where we are but we are just seeing the early stages of what's possible at Fedex.

Scott Schneeberger: The next question is from Scott Schneeberger with Oppenheim. Thanks very much, everyone. It's basically two questions.

Speaker Change: The next question is from Scott Schneeberger with Oppenheimer.

Scott Schneeberger: Thanks, very much everyone.

Speaker Change: It's basically two questions one to follow up to Bruce.

Brie Carere: One's a follow-up to Bruce's. Brie, I was hoping if you could kind of give an overview of peak season, kind of takeaways, learnings. And then I think we have five less calendar days for the 2024 calendar peak. So just things that you're going to learn and manage ahead of time as it's a much more condensed season. And then the second question for any of you, but just in ground cost per package, it was down 2% in the fiscal second quarter, and you cited improved first and last mile productivity. Flat here in this quarter, and offset was higher first and last mile cost.

Speaker Change: The next question is from Ravi Shanker with Morgan Stanley.

Speaker Change: I was hoping if you could kind of give an overview of peak season.

Ravi Shanker: Thanks again for everyone apologies.

Speaker Change: Apologies if I missed this but.

Speaker Change: Takeaways learnings and then I think we have five less calendar days for.

Speaker Change: Regarding the USPS contract kind of when do you expect that to reach fruition.

Speaker Change: For the 2024 calendar peak suggest things.

Speaker Change: Is that something that happens in FY 'twenty four 'twenty five and also can you share how much of the volume has come off already.

Speaker Change: That youre going to learn and manage ahead of time.

Speaker Change: As as it is a much more condensed season and then the second question for any of you but.

Speaker Change: How much would you dimension.

Speaker Change: Net net with the new contract ends up being thank you.

Speaker Change: Just in in ground cost per package. It was it was down two.

Hi, Ravi Thanks for the question it free.

Speaker Change: <unk> percent in the fiscal second quarter, and you cited improved first and last mile productivity.

Speaker Change: USPS contract, but I really can't say more than I already said earlier and sure. We are feeling very positive about the negotiation. Both parties are working eagerly we're at the table.

Speaker Change: Flat here in this quarter and an offset was higher first and last mile cost just curious if theres anything we should read into there. Thanks for taking the bus.

Brie Carere: Just curious if there's anything we should read into there. Thanks for taking them both. Yeah, I think from a peak perspective, you know, we're really pleased with how we're managing peak from a service, from a customer and from a profitability perspective. First and foremost, the team starts literally now for this coming peak. And what do I mean by that? We are already talking to customers about what their peak requirements are for next year. And so that John and Scott have advanced planning. And then, of course, as we get closer to peak, we take the top 100 customers and we are managing forecasts on a weekly basis.

Speaker Change: I think we are days or weeks away from knowing if we will have a contract not months and as we have shared previously their current contract ends on September 29th So.

Speaker Change: Yeah, I think from a peak perspective, we're really pleased with how we're managing peak from a service from a customer and from a profitability perspective.

Speaker Change: We will know very very soon and I'm certainly not at Liberty to talk about the details of our future contract.

Speaker Change: First and foremost the team start to literally now for this coming peak and what do I mean by that we are already talking to customers about what their peak requirements are for next year, and so that John and Scott have advanced planning and that of course as we get closer to peak, we take the top 100 customers and we are managing forecast.

Speaker Change: Okay.

Speaker Change: The next question is from Stephanie <unk> with Jefferies.

Stephanie: Hi, Good evening. Thank you for the question.

Speaker Change: I appreciate the incremental color on network <unk>.

Speaker Change: And I was hoping you could maybe provide a little bit of color.

Speaker Change: On a weekly basis I think some of the integrated planning that we're doing with data works is also incredibly helpful. So that we have real time information.

John Dietrich: I think some of the integrated planning that we are doing with DataWorks is also incredibly helpful so that we have real time information. We're not waiting for spreadsheets to be passed over, but we've actually got real time visibility into some of our largest customers, which has been incredibly helpful. So I don't anticipate us doing much different this year, but more of the same. And again, I also was really pleased with the peak surcharge capture. We are ensuring that the customers that really drive the investment we need in December, we're getting recouped for that cost. We feel good.

Speaker Change: Some of the investments that have to be made in order to execute on the integration, particularly as you enter.

Speaker Change: The execution of a much larger market like Canada any color in terms of maybe lessons learned from your Alaska and Hawaii.

Speaker Change: Waiting for spreadsheets should be passed over but we've actually got real time visibility into some of our largest customers, which has been incredibly helpful. So I don't anticipate us doing much different this year, but more of the same and again I also was really pleased with the peak surcharge capture we are ensuring that the customers that really drive the inverse.

Speaker Change: And then what investments you should expect to see as you implemented in Canada. Thank you.

John: Yes, Thanks, Stephanie it's John Yes, certainly there is going to be some investment required when you're consolidating facilities, particularly sort facilities.

Speaker Change: Net we need in December we're getting recouped for that cost we feel good.

John Dietrich: Yeah, and I'll speak to the ground piece. And I think one of the drivers of the margin expansion and cost control at ground was lower line haul expense that I alluded to. And we moved a lot of high cost and ad hoc external line haul spend into our scheduled network. And as a result, achieved lower rates on the planned line haul purchase transportation. And this is all part of a broader optimization and ongoing optimization that's taking place in the network through drive and through network 2.0. And so every aspect and even those on, you know, first and last mile will be part of that.

Speaker Change: Yeah, and I'll speak to the ground piece and I think one of the drivers of the margin expansion and cost control at ground was lower line haul expense.

John: But there is also upside in that you are able to reduce your facilities footprint along the way.

John: So that will involve some certainly some planning and processes.

Speaker Change: Alluded to and we moved a lot of high cost and AD hoc external line haul spend into our scheduled network.

John: <unk> assist and all that but we're excited actually about the end game here and that is our overall footprint will will far.

And as a result achieved lower rates on the planned line haul purchase transportation and this is all part of a broader optimization and ongoing optimization, that's taking place in the network through drive and through network <unk>.

John: The benefits of that will far exceed the investment and contribute to a really efficient network.

Speaker Change: And honestly, if unless in Florida, I think the team feels really good about their execution to date to Roger's point, we have seen kind of the PND benefits that we anticipated as well as we've seen the team be able to execute from a service perspective, I will say, we are being very disciplined we're being very methodical.

Speaker Change: And so every aspect and even those.

Speaker Change: First and last mile will be part of that and we're also leveraging.

John Dietrich: And you know, we're also leveraging the capacity that we have. And we do have some additional capacity in the ground network that can absorb additional volumes at no incremental cost. So that should help improve margins as well.

Speaker Change: The capacity that we have and we do have some additional capacity in the ground network that can absorb additional volumes at no incremental cost so that should help improve margins as well.

Speaker Change: And we are giving customers the advance notice as we go into market that was one piece of feedback for customers, even though we anticipate being able to deliver the same level of service with the combined organization as we are as the individual they do want that notification and so we of course are getting customers that advanced notification and to Roger's point on the <unk>.

Rajesh Subramaniam: This concludes our question and answer session. I would like to turn the conference back over to Raj Subramaniam for any closing remarks. Thank you, operator. In closing, we saw continued operating income growth, margin expansion, despite lower revenue for the third consecutive quarter. And this is clear evidence that DRIVE is working. While these results are encouraging, it is our top priority to maintain momentum and continue to transform our network and the way we work. Once again, let me thank our FedEx team members for their hard work and dedication to delivering outstanding customer service. I'm really proud of the work that we have accomplished as we continue to build the world's most flexible, efficient, and intelligent network.

Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Raj Subramaniam for any closing remarks.

Raj Subramanias: Thank you operator in closing we saw continued operating income growth margin expansion, despite lower revenue for the third consecutive quarter and this is clear evidence that drive is working.

Speaker Change: Positive.

Speaker Change: I cannot under <unk>.

Speaker Change: <unk>, how important that single pick up is to our small customer segments. This has been the only feature gap we had <unk> in that segment and we are about to close that so I'm pretty excited about that.

Raj Subramanias: While these results are encouraging it is our top priority to maintain momentum and continue to transform our network and the way we work.

Raj Subramanias: Once again, let me thank our Fedex team members for their hard work and dedication to delivering outstanding customer service I'm really proud of the work that we have accomplished as we continue to build the world's most flexible efficient and intelligent network. Thank you for your time and attention today.

Bruce Chan: The next question is from Bruce Chan with Stifel.

Bruce Chan: Hey, Raj breach on and Jenny welcome to the mix here.

Speaker: Thank you for your time and attention today.

Bruce Chan: I don't know if you've really talked about it but we've been hearing that you've had some pretty material service improvements, especially at ground over the last call it year or so and thats. Despite the cost savings push can you maybe just talk about that a little bit where the service levels. Today, what are the levers that youre pulling and then what kind of opportunity do you have to drive core pricing.

Raj Subramanias: Yes.

Speaker: The conference is now concluded. Thank you for attending today's presentation.

Raj Subramanias: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

Speaker: You may now disconnect your line.

Bruce Chan: As a result of that thank you.

Speaker Change: I Love This question John.

Speaker Change: John Smith, and Scott Ray are crushing it.

Speaker Change: When we went back and looked at our Q4 that the toughest quarter to delight I should say Q4 calendar year, the toughest quarter to deliver awesome service not only are we faster I am quite confident.

Speaker Change: On those higher standards from a delivery service perspective, we also had better reliability how are they doing methods discipline its day in and day out execution.

Speaker Change: We look at our service metrics every single morning, we talk about net promoter score every week at our revenue Management Committee.

Speaker Change: <unk> coverage on the integrated leadership team now the service organization, we absolutely expect to extend that across the entire network and I just could not be more appreciative of our operators and how well they're doing and I wanted to answer that question because she holds their feet to the fire every single day. So I'm glad that you heard the answer.

Speaker Change: Correctly from brain.

Speaker Change: The next question is from Conor Cunningham with Melius research.

Conor Cunningham: Everyone. Thanks for getting me in I was hoping you could talk about the opportunity you see just with the E Commerce return business, but you've obviously been a big player there.

Conor Cunningham: Theres been a lot of changes in the network is that now a larger focus the reason why I ask obviously theres been a press report about you reengage with Amazon. So just any thoughts there would be helpful. Thank you.

Conor Cunningham: Sure Happy to I think we've got the best returns portfolio in the market. When you look at our retail coverage as well as our transportation solution. It is best in class and when we looked at our January numbers. The Fedex ground returns portfolio did see some healthy growth you layer that on with the new announced.

Conor Cunningham: Net of our <unk> platform.

Conor Cunningham: Going to be the only provider that has not only the physical capabilities, but a very comprehensive digital capability and what do I mean by that we are going to be able to help all retailers brands and merchants process. Their returns on their web site managers manage their exchanges manage the <unk>.

Conor Cunningham: Tori integrate their branded tracking and communications to customers. It's a really powerful offering as I mentioned earlier, we started to preview this with some customers. We've got some pretty big names and what we're calling a private preview and I look forward to sharing more results. Once we do the full launch later in the fall.

Conor Cunningham: <unk>.

Conor Cunningham: I think I'll stop there I haven't <unk> about that no I would just say this much on the infant and integrated those customers, even Kim program and it is a no code environment I can set up better trumps policies. So if I can do that anyone can do it.

Speaker Change: The next question is from Scott Schneeberger with Oppenheimer.

Scott Schneeberger: Thanks, very much everyone.

Speaker Change: It's basically two questions one to follow up to Bruce's.

Speaker Change: I was hoping if you could kind of give an overview of peak season.

Speaker Change: Kind of takeaways or learnings and then I think we have five less calendar days.

Speaker Change: For the 2024 calendar peak suggests things.

Speaker Change: That youre going to learn and manage ahead of time.

Speaker Change: As as it is a much more condensed season and then the second question for any of you but.

Speaker Change: Just an in ground cost per package. It was it was down 2% in the fiscal second quarter and you cited improved first and last mile productivity.

Speaker Change: Flat here in this quarter and an offset was higher first and last mile cost just curious if theres anything we should read into there. Thanks for taking the bus.

Speaker Change: Yes, I think from a peak perspective, we're really pleased with how we're managing peak from a service from a customer and from a profitability perspective.

Speaker Change: First and foremost the team start to literally now for this coming peak and what do I mean by that we are already talking to customers about what their peak requirements are for next year, and so that John and Scott have advanced planning and then of course as we get closer to peak, we take the top 100 customers and we are managing forecast.

Speaker Change: On a weekly basis I think some of the integrated planning that we're doing with data works is also incredibly helpful. So that we have real time information.

Speaker Change: We're not waiting for spreadsheets should be passed over but we've actually got real time visibility into some of our largest customers, which has been incredibly helpful. So I don't anticipate us doing much different this year, but more of the same and again I also was really pleased with the peak surcharge capture we are ensuring that the customers that really drive the.

Speaker Change: Investment we need in December we're getting recouped for that cost so we feel good.

Speaker Change: And I'll speak to the ground piece and I think one of the drivers of the margin expansion and cost control at ground was lower line haul expense.

Speaker Change: I alluded to and we moved a lot of high cost and AD hoc external line haul spend into our scheduled network.

Speaker Change: And as a result achieved lower rates on the planned line haul purchase transportation.

And this is all part of a broader optimization and ongoing optimization, that's taking place in the network through drive and through network <unk>.

Speaker Change: And so every aspect and even those.

Speaker Change: First and last mile will be part of that and we're also leveraging.

Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Raj Subramaniam for any closing remarks.

Raj Subramaniam: Thank you operator in closing we saw continued operating income growth margin expansion, despite lower revenue for the third consecutive quarter and this is clear evidence that drivers working.

Raj Subramaniam: While these results are encouraging it is our top priority to maintain momentum and continued to transform our network and the way we work.

Raj Subramaniam: Once again, let me thank our Fedex team members for their hard work and dedication to delivering outstanding customer service I'm really proud of the work that we have accomplished as we continue to build the world's most flexible efficient and intelligent network. Thank you for your time and attention today.

Raj Subramaniam: Yes.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

Q3 2025 FedEx Corp Earnings Call

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