FedEx Corporation

Please stand by. Good day, everyone, and welcome to the FedEx Corporation first quarter fiscal year 2023 earnings conference call. Today's call is being recorded. At this time, I will turn the call 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. Before we begin, we want to recognize our SEC 8K was filed earlier than planned due to a technical issue. The first quarter earnings release form 10Q and stat book are on our website at fedex.com. 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 question and answer session, Callers will be limited to one question in order to allow us to accommodate all those who would like to participate. We 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 would 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 a 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 Raj Subramaniam, President and CEO, Mike Lins, Executive Vice President and CFO, and Brie Carreri, Executive Vice President and Chief Customer Officer. And now Raj will share his views on the quarter.

Thank you, Mickey, and good afternoon, everyone. I'd like to start today by acknowledging our pre-announced first quarter earnings results and updated outlook we provided last week. Our network capacity did not align with the demand we experienced as the quarter progressed. But, as communicated last week, we have taken swift actions to address what's within our control. Getting costs out rapidly is my priority. And today, I will outline why I'm confident in our ability to drive improved performance and profitability through aggressive cost actions. Before providing more details around these actions, let me briefly discuss what happened since we last spoke to you in June. We saw a decline in our volumes during the first quarter, which accelerated in the final weeks. Our softening volumes in Asia and the US were predominantly due to the economy, while the shortfall in Europe was both economic and service-related. Therefore, we had costs in the system for volumes that didn't materialize. While we immediately took action, savings from these cost efforts lagged the volume decline due to the scale of our operations. As a result, while revenue was up 6% year over year, these dynamics translated to volumes being down year over year at all our transportation segments. The volume decline directly impacted our bottom line, driving total company adjusted operating income down roughly 18% year over year. Now, what matters most is what we are doing about it. And this brings me to our aggressive and decisive plan to reduce costs. I'll speak to our actions in two parts. First, our fiscal year 23 steps to immediately reduce costs. And second, our deliver today, innovate for tomorrow transformation strategy to permanently reduce costs and optimize our network. Starting with fiscal year 23, we are prioritizing cost actions to generate $2.2 to $2.7 billion of savings, of which about $1 billion will be permanent. Taking each key contributor in turn, at FedEx Express, we expect to drive $1.5 to $1.7 billion in savings this fiscal year. The largest single expected contributor in fiscal 23 will be the changes we are making to our express air network as we cut global flight hours. This reduction includes 11% of trans-Pacific daily frequencies, 9% of trans-Atlantic daily frequencies, and 17% of daily frequencies in the lane between Asia and Europe. As volumes deteriorated later in the quarter, we began making these structural changes to our network. The impact of these initial changes will be fully realized in October, and the benefit of our continued actions will steadily increase throughout the fiscal year. We're also evaluating additional reductions to be implemented post-peak. Further, we're taking steps to enhance our ground efficiency, including reducing routes, hours, vehicle rentals, and other on-road expenses. For example, in Europe, we are altering ground network routes to improve productivity, leading to a reduction of approximately 11% of routes in the UK and 12% in Germany. Now turning to FedEx Ground. We expect savings in grounds to be $350 to $500 million in fiscal 23. Our approach to cutting costs of ground primarily centers around rationalizing our operations. We are consolidating sorts, which will reduce costs while maintaining service, and have canceled several planned ground network capacity projects. And as mentioned last week, we're also reducing select Sunday operations in over 170 stations. Mike will provide more details on our capital plans shortly. The final components of our expected fiscal 23 savings will be from overhead expenses as we right-size our overall cost structure. These actions include our plans to close nearly 140 FedEx office locations and at least five corporate office facilities. Additionally, FedEx Services has stopped all non-critical projects. In total, our overhead reduction actions, including FedEx Services, will contribute $350 to $500 million. We realize nearly $300 million in cost savings from these actions in Q1 and expect approximately another $700 million in Q2. to the remainder of the fiscal 23 savings realized during the second half of the year. The second part of our cost plan is focused on permanent reductions, and we have launched DRIVE, a program supporting our Deliver Today, Innovate for Tomorrow strategy introduced in June. DRIVE is how we execute on that strategy. Our team has already started implementing cost reductions under this program, and this will ultimately enable Network 2.0 the long-term end-to-end optimization of our network. Sriram Krishnasamy, our newly appointed Chief Transformation Officer, will facilitate DRIVE and continue reporting directly to me. In total, we expect to take out an additional $4 billion in costs related to DRIVE by fiscal year 2025. Be clear, these are incremental to the fiscal 23 savings I just outlined. These transformational changes will lay the foundation for Network 2.0, which will create an additional $2 billion benefit over the long term. In closing, we are focused on actions we can control as we stabilize our near-term performance and execute against our long-term strategies. I'd like to sincerely thank our highly motivated team for the hard work and dedication to deliver upon the Purple Promise. Now, let me turn it over to our Chief Customer Officer, Brie Carreri, to discuss market trends that underpin our outlook and our commercial strategy in some more detail.