FedEx Corporation

Good day and welcome to the FedEx Physical Year 2024 Fourth Quarter Earnings Call. All participants are in a listen-only mode. Should you need assistance, please signal a conference specialist 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 touchtone phone. To withdraw your question, please press star then two. Please note that this event is being recorded. I would now like to turn the conference over to Jenny Hollander, Vice President of Investor Relations, please go ahead.

Good afternoon and welcome to FedEx Corporation's fourth quarter earnings conference call. The fourth quarter earnings release and stat book are on our website at investors.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. During our Q&A session, Callers will be limited to one question to allow us to accommodate all those who would like to participate. Certain statements in this conference call may be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. 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. For additional information on these factors, please refer to our press release and filings with the SEC. Today's presentation also includes certain non-GAAP financial measures. 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, Brie Carreri, Executive Vice President and Chief Customer Officer, and John Dietrich, Executive Vice President and CFO. Now I will turn the call over to Raj.

Thank you, Jenny. Our fourth quarter performance marks a strong end to a year of successful execution. We delivered year-over-year operating profit growth and margin expansion in every quarter of FY24. We lowered our capital intensity, reaching our FY25 target of less than 6.5% a year early. With lower CapEx and higher free cash flow, we returned nearly $4 billion to stockholders. And we meaningfully improved our return on invested capital. The entire industry faced a challenging demand environment in FY24. Our team focused on what we could control, and as a result, we delivered full year earnings towards the higher end of our original guidance range, up 19% year over year on an adjusted basis. We did this despite a decline in revenue compared to our initial growth expectations. We also advanced our network transformation, continuing to roll out Network 2.0 and finalizing the transition to One FedEx, which went into effect June the 1st. We did all of this while maintaining an intense dedication to serving our customers, a relentless pursuit of innovation, and an unwavering commitment to our people, service, profit culture. Our transformation journey will continue in FY25 as we build on the team's outstanding progress. Now turning to the quarter in more detail. At the enterprise level, revenue growth inflected positive this quarter as expected. While we saw modest yield improvement and signs of volume stabilization across segments, we have not yet seen a notable increase in demand. Continued execution of drive alongside effective expense management enabled year-over-year improvements to adjusted operating income, margins, and earnings per share. Let me pause here to acknowledge and provide context around the team's tremendous Q4 and full year results. Brown delivered its highest adjusted operating income in company history for both the fourth quarter and the full year. At freight, fourth quarter operating income increased despite significant demand weakness. In fact, because of our strong fourth quarter performance, freight ended fiscal year 2024 with full year operating margin equal to last year's all-time high. Adjusted express operating margin increased sequentially in the quarter, but declined year over year as expected. We continue to take action to unlock the full profit opportunity that exists in this business. DRIVE continues to change the way we work at FedEx. We've achieved our target of $1.8 billion in structural costs out in FY24, with approximately $500 million from Air Network and International, $550 million from GNA, and $750 million from surface network. In our air network, structural network transformation and reduced flight hours drove the Q4 savings. Within GNA, we realized procurement savings by centralizing third-party transportation, short equipment, and outside service contracts. Our surface network continued to maximize the use of rail. As part of that effort, freight now handles nearly 90% of the dredge volume, up from about 25% just one year ago. Looking ahead, we are firmly on track to achieve our target of $4 billion of savings in FY25 compared to the FY23 baseline. Let me spend a moment on Europe. where we are executing on the $600 million FY25 drive savings target we have shared previously. I would like to thank Karen Reddington for her more than 27 years of service at FedEx, most recently as our Europe Regional President. A couple of weeks ago, Karen announced her impending retirement. We wish her all the very best. Walter Rolls, who is an exceptionally seasoned and experienced executive, will become our Europe regional president on July the 1st. Walter has been leading our Europe drive domain since its 2022 inception. I'm confident that under Walter's leadership, the team will continue to advance drive initiatives to support improved performance. John. Bree, other FedEx executives, and I were in Europe visiting the team just last week. Our team members there are working with rigor to execute on our efficiency plans and our performance improved on a year-over-year basis. The fourth quarter, route optimization, improved thought processes, and productivity gains led our Europe drive domain savings. Key actions are already underway for FY25. I left the continent encouraged by our progress and with even more conviction in the opportunity ahead. On June 1, we reached an important milestone in our transformation, what we call One FedEx. This is the consolidation of FedEx Express, FedEx Ground, and FedEx Services into Federal Express Corporation. There are many benefits. This foundational step improves efficiency and reduces costs, allows our teams to move with speed, and makes it easier for our team members to manage their FedEx careers. In Q4, we also continue to roll out Network 2.0, including the launch in Canada. our largest market yet. In the first half of FY25, we will complete the Canada transition and optimize dozens of additional locations in the US. We expect to significantly pick up the pace into FY26. Importantly, even as we streamline our structure, we are maintaining our strong service levels. and we continue to offer the widest portfolio of services with the most compelling value proposition for our customers. Our integrated portfolio offering is a long-term driver of sustained profit improvement and a key enabler of our tri-color network design. We also continue to leverage data to create a more flexible, efficient, and intelligent network. In November of 2023, we began introducing a new tool to our contracted service providers in the U.S. to track and drive improvement across key operating metrics tied to demand, safety, service, and productivity. This tool is a common platform that we plan to scale globally, providing insights and enabling outcomes that are beneficial to FedEx, our contracted service providers, and our customers. Across the 65% of service providers currently using the platform, it's already driving service and safety improvements, which are translating into cost savings. Real-time visibility tools like this are critically important as we start to flow packages across our network, irrespective of service offerings. Our FY24 results create a strong foundation as we kick off the new fiscal year. In fiscal 2025, we will continue to execute our transformation strategy and expect to deliver adjusted EPS growth of 12 to 24%. John will provide more detail on our outlook and the underlying assumptions shortly. With the recent completion of the FY25 planning process, we have turned our focus to the next phase of our long-term stockholder value creation plans. As a part of this work, our management team and the board of directors, along with outside advisors, are conducting an assessment of the role of FedEx Freight in our portfolio structure and potential steps to further unlock sustainable shareholder value. We're committed to completing this review thoroughly and deliberately by the end of the calendar year. We'll conduct this assessment while continuing to focus on customers, team members and the safety of our operations. Before I close, I want to thank our FedEx team members for their continued commitment to our customers and their focused execution in FY24. I'm truly excited about the value creation opportunities in front of us as we continue to win profitable share, execute on our structural cost initiatives, and leverage the insight from the vast amount of data we compiled from moving more than $2 trillion worth of goods every single year. We are firmly on track to achieve our $4 billion FY25 drive cost savings target compared to the FY23 baseline. We expect another $2 billion to follow from Network 2.0 Our tricolor strategy will improve the efficiency and asset utilization of the entire FedEx system. We expect to continue lowering our capital intensity, improving our OIC, growing free cash flow, and delivering significant returns to stockholders. We have a clear line of sight for achieving 10% adjusted operating margin on $100 billion revenue. I have never been more confident in our future as we create the world's most flexible, efficient, and intelligent network. With that, let me turn the call over to Bree.