FedEx Corporation

Good day, everyone, and welcome to the FedEx Corporation First Quarter Fiscal Year 2020 Earnings Conference. Today's call is being recorded. At this time, I would like to turn the conference over to Mickey Foster, Vice President of Investor Relations for FedEx Corporation. Please go ahead.

Good afternoon, and welcome to FedEx Corporation's First Quarter Earnings Conference call. The First Quarter Earnings Release and Statbook are on our website at FedEx.com. In addition, certain speakers may refer to charts we posted on the website this afternoon. This call is being streamed from our website, where the replay will be available for about one year. Joining us on the call today are members of the media. During our Q&A session, callers will be limited to one question in order to allow us to accommodate all those who would like to participate. I want to remind all listeners that FedEx Corporation desires to take advantage of the Safe Harbor provisions of the Private Securities Litigation Reform Act. Certain statements in this conference call, such as projections regarding future performance, may be considered forward-looking statements within the meaning of the act. Such forward-looking statements are subject to risks, uncertainties, and other factors which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For additional information on these factors, please refer to our press releases and filings with the SEC. please refer to the investor relations portion of our website at fedex.com for reconciliation of the non-GAAP financial measures discussed on this call to the most directly comparable GAAP measures. Joining us on the call today are Fred Smith, Chairman, Raj Subramanian, President and COO, Alan Graf, Executive Vice President and CFO, Mark Allen, Executive VP, General Counsel and Secretary, Rick Herrera, Executive VP, Chief Marketing and Communications Officer, and Rob Carter, Executive Vice President, FedEx Information Services and CIO, who is calling in remotely. And now Fred Smith will share his views on the quarter.

Thank you, Mickey. Good afternoon. Thanks, everyone, for participating in our first quarter FY20 analyst call. Let me also thank the hundreds of thousands of FedEx teammates around the world who work every day to keep our purple promise. I will make every FedEx experience outstanding. When our strategic management committee presented the FY20 business plan to our board of directors last spring, we identified three significant challenges to increasing earnings this fiscal year consistent with our stated long-term goals. One, beginning in the fall of 2018, it had become clear that global trade disputes were adversely affecting manufacturing in Europe and Asia thereby slowing international shipping demand. Two, our TNT integration was facing its most important phase, leading to the integration of European ground operations by the end of FY20. And three, we plan to add capabilities to enhance our services for the rapidly growing e-commerce market, which we expect to grow in the United States from $50 million to 100 million packages per day by 2026. These shipments will be destined increasingly to residences and one in four packages will be short distance deliveries. While the backbone of FedEx is the B2B business, our unmatched ground and express line haul and sort networks carry both B2B and B2C commerce with great efficiency. To lead in e-commerce, we have launched or announced FedEx Extra Hours, an express service which provides nightly pickup with the delivery the next business day. Insourcing FedEx SmartPost packages for FedEx Ground delivery by peak 2020. FedEx Ground six- and seven-day delivery. Expanding the FedEx Ground oversized package network to approximately 100 facilities by peak 2020. New return services and thousands of additional pickup and shipping points, including $8,000 general on-site locations in less dense areas. And finally, FedEx Freight Direct for heavy and hard-to-handle items requiring delivery over the threshold, the so-called H3D market. FedEx can handle millions of additional shipments generated by these new offerings without adding significant additional sortation capacity. It should be noted a large amount of ground growth will be short haul Zone 1 that will be lower yield but with improved margin due to increasing density and minimal line haul cost. There is a new video on our website that goes into detail about our broad portfolio and I hope you will watch it. Our services and capabilities and costs will be industry-leading in this short-haul Zone 1 sector. The FedEx Board of Directors endorsed making these moves as FY19 came to a close, understanding the short-term cost as we believe by the end of this fiscal year, FY20, we will have significantly repositioned FedEx for strong future earnings. The market is changing as volumes are moving out of the USPS and we are insourcing more. We have a chart on the IR website that shows these trends. Over the summer, these challenges increased somewhat due to the decision to not renew our largest Amazon contract and deepening trade disputes. While the Amazon contracts represented only a small proportion of our revenues, the nature of our business is such that near-term profits will be adversely affected since the last bit of volume has significant flow through to the bottom line. However, we have closed additional business to replace this traffic, which is being onboarded, and we are taking out significant costs, which were unique to Amazon's requirements. Also, the global macro economy continues to soften and we are taking steps to reduce capacity. Specifically, we will retire 20 MD-1010 aircraft over the current and next fiscal year, which will eliminate that fleet type from our air operations. We are highly likely to also retire the remaining 10 A310 aircraft this year which will also lead to the elimination of that fleet type. In addition, we are parking the equivalent capacity of seven MD-11 aircraft this fiscal year. Accordingly, assuming no recession, we will continue the initiatives announced in May and June with confident optimism about FedEx's long-term future competitive position and industry leadership. We posted a chart on our website that shows the significant customer correlation among our three core opcos. Our ability to bundle express ground and freight services is essential to success in our competitive ecosphere. FedEx Office and FedEx Logistics also provide important value-added services to our portfolio against the major competitors we face every day. Let me now ask Bree to amplify our views on the marketplace and the economy, then Raj to discuss current operations, including our plans for peak season, and Alan will give you more details on our financials. Then we will take your questions. Bree.