FedEx Corporation

Good day and welcome to the FedEx fiscal year 2024 first quarter earnings call. All participants will be in a listen only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch tone phone. And to withdraw your question, please press star then two. Please note this event is being recorded I would now like to turn the conference over to Mr. Mickey Foster, Vice President of Investor Relations. Please go ahead, sir.

Good afternoon, and welcome to FedEx Corporation's first quarter earnings conference call. The first quarter earnings release, form 10Q, and stat book are on our website at FedEx.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. 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. Certain statements in this conference call, such as projections regarding future performance, may be considered forward-looking statements. 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 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 Subramanian, President and CEO, Brie Carreri, Executive Vice President, Chief Customer Officer, and John Dietrich, Executive Vice President and CFO. Before I turn the call over to Raj, I wanted to let everyone know that I'm retiring from FedEx at the end of October. It has been a privilege being a longtime part of the FedEx team. I truly believe that FedEx's best days are ahead, but I will be cheering from the sidelines as I am 67 years old and I want to spend more time with my family. With that, I will now turn it over to Raj for him to share his views on the quarter.

Thank you, Mickey, and good afternoon. I would like to first congratulate Mickey on his upcoming retirement. He has led our investor relations team for nearly 18 years, spanning 70 earnings calls, and after tomorrow, 18 annual meetings. He will be missed by all, and especially this audience, and we thank him for his outstanding service to FedEx over the years. And we also take this opportunity to welcome John Dietrich, our Chief Financial Officer for FedEx. With more than 30 years of experience in the aviation and air cargo industries, John brings a unique blend of financial and operational expertise to our leadership team at a very important time for this company. He's already hit the ground running, and I'm very happy that he has joined FedEx. So now turning to the quarter. We entered fiscal year 24 with strength and momentum. delivering results ahead of expectations in what remains a dynamic environment. I'm proud of what the FedEx team has accomplished over the last 12 months. Amid significant demand disruption, we delivered on what we said we would do, driving over $2 billion in year-over-year cost savings in fiscal 23. We are now well advanced in executing on that transformation to be the most efficient, flexible, and intelligent global network. Our first quarter progress gives me great conviction in our ability to execute going forward. We came into the quarter determined to provide excellent service to our customers despite the industry dynamics. We achieved that goal while delivering innovative and data-driven solutions that further enhance the customer experience. As a result, we are well positioned as we prepare for the peak season. As you can see in our results on slide six, our transformation is enhancing our profitability. Ground was a bright spot with higher revenue year over year driven by higher yield. On top of this growth, ground drove exceptional operational performance, leading to its most profitable quarter ever on an adjusted basis. As expected, total revenue declined as volumes and yields were pressured at express and freight. We indicated last quarter that express revenue would be adversely impacted by international export yield pressure, as well as a change in strategy by the U.S. Postal Service, which we are addressing through drive as we build a more nimble airline. For the total company, we delivered 200 basis points of adjusted margin improvement as we realized efficiencies across our networks. This performance is a testament to the power of drive and the FedEx team working collaboratively to implement structural cost reductions throughout the enterprise. During the quarter, labor negotiations at our primary competitor and the bankruptcy of Yellow disrupted the market. Our priorities were clear. Protect our customers, deliver outstanding service, and focus on high-quality revenue. We delivered on those priorities, leveraging our flexible network to profitably add volume while maintaining the highest levels of service. While we captured upside as a result of these one-time events, we were highly discerning in terms of the business we accepted in keeping with our goal to drive high-quality revenue. Importantly, we expect to maintain the majority of the volume we added in the quarter. I want to thank our FedEx team for deftly navigating these conditions to execute on our discipline strategy. Now turning to drive. We are fundamentally changing the way we work. Drive is taking cost out of our network, and we are on track to deliver our targeted $1.8 billion in structural benefits from DRIVE this fiscal year. At ground, our DRIVE initiatives reduced costs by $130 million this quarter. These savings were primarily driven by lower third-party transportation rates as a result of a newly implemented purchase bid system, as well as optimized rail usage, the continued benefit from reduced Sunday coverage and the consolidation of sorts. At Freight, we continue to manage our cost base more effectively. For example, during the quarter, Freight completed the planned closure of 29 terminal locations during August. And at Express, despite headwinds from Asia yields and the U.S. Postal Service, we delivered on our plan. They're making our global network more efficient, primarily through structural flight takedowns and efficiencies at our hubs and ports as we right-size the capacity across the network. In Europe, drive initiatives are on track, and we expect them to gain further traction over the course of the year and into FY25. Looking ahead, we're excited to leverage John's aviation experience as we continue to transform our air network. And our drive expectations for this year include the G&A savings we have previously outlined, which we believe will start to ramp in the second half of this fiscal year. Finally, on slide eight, I will provide a brief update on our key strategic focus areas as we move into the next phase of our transformation. This includes one FedEx, which is how we are better aligning our organization to enable Network 2.0. We are well underway with plans to simplify our organization. In June 2024, FedEx Express, FedEx Ground, and FedEx Services will consolidate into one company, Federal Express Corporation. The reorganization will reduce and optimize overhead streamline our go-to-market capabilities, and improve the customer experience. To date, we have implemented or announced Network 2.0 in several markets, including Alaska, Hawaii, and Canada. As each market is different, we're continuously learning and tailoring the network to adapt to the operational characteristics unique to each region while delivering the highest quality service for our customers. We'll continue to use both employee couriers and service providers for pickup and delivery operations across the network. As with any significant transformation, these changes are being thoughtfully executed and will take time to complete. The network that FedEx has built over the last 50 years provides us a foundation that is unmatched. This physical network enables us to transport millions of packages a day around the world, generating terabytes of data that contain invaluable insights about the global supply chain. You're focused on harnessing the power of this rich data to make supply chains smarter for everyone, for our customers, for our customers' customers, and for ourselves. As we move to the next phase of our transformation, I've given the team three specific challenges. To use data to make our network more efficient, make our customer experiences better, and drive new profitable revenue streams through digital. Looking ahead to the rest of FY24, we remain focused on delivering the highest quality service and aggressively managing what is within our control. Factoring in better than expected first quarter results, we're increasing the midpoint of our adjusted EPS outlook range. As we continue to deliver on our commitments, I'm confident we have the right strategy and the right team in place to create significant value. With that, let me turn the call over to Bri.