The paragraph introduces the conference call for FedEx's third quarter earnings and provides instructions for participants. It also mentions that the call will be recorded and streamed on the company's website. Jeni Hollander, Vice President of Investor Relations, will be leading the call. The call will include statements about the company's financial performance and may include non-GAAP financial measures. Raj Subramaniam, President and CEO, and other executives will be speaking on the call.

The speaker congratulates Bob Carter on his upcoming retirement and thanks him for his contributions to FedEx over the past 24 years. They also express gratitude to the FedEx team for their exceptional work in Q3, which resulted in operating income growth and margin expansion despite a decline in revenue. This demonstrates progress on their transformation goals and supports their long-term goals for sustainable margin expansion and value creation for stockholders. The speaker also highlights the strong performance at Ground, with a 14% increase in adjusted operating income and an improved operating margin of over 11%.

The company has shown progress in controlling expenses and increasing yield management. Despite challenges in volume and revenue, they are reaffirming their adjusted EPS range and expect to exceed the midpoint. The focus is now on addressing changes in the Express business, including a shift towards deferred services and weakness in global trade. The company is actively realigning their air network to match capacity with demand.

In the third quarter, Express experienced over $200 million of inflationary pressure, but offset it with benefits from DRIVE and responsible headcount management. The introduction of the Tricolor strategy will improve network utilization and profitability. In Europe, service levels are improving, but the B2B environment remains challenging. The company is making progress on DRIVE and seeking further profit optimization opportunities. The continued headwind from the United States Postal Service is impacting volume and revenue, but DRIVE remains a key enabler of improved profitability. In Q3, $550 million of benefits were delivered from DRIVE, offsetting revenue declines and cost pressures.

The company has made significant progress in reducing costs through their DRIVE initiative, with $290 million in savings in their surface network, $110 million in air and international operations, and $150 million in general and administrative expenses. They are confident in reaching their goal of $1.8 billion in cost reductions this fiscal year and $2.2 billion in fiscal year 2025. The implementation of Network 2.0 has also begun, with a new surface operations leadership structure and consolidation of operating companies into one organization. This has resulted in improved service and profitability for customers. However, severe weather can still cause delays and reduced service levels across the network.

The company has developed a new weather contingency playbook that utilizes data and analytics to proactively divert volumes during weather events. This was effective in mitigating the impact of a recent winter storm on their operations. The company has also announced a new initiative called FDX, which aims to connect the entire customer journey and provide real-time visibility using their analytical capabilities and data from their daily deliveries. The company has appointed a new Chief Digital and Information Officer to drive optimization and innovation through data and insights. The company's transformation strategy is showing progress and they remain committed to their long-term goals of creating value for their shareholders. Brie will now take over the call.

The author thanks the FedEx team for their strong performance during the peak season and highlights their industry-leading service and commercial priorities. They mention profitable share gains and high-value wins in various industries. They also discuss weaker conditions in the US and internationally, but remain focused on strong commercial execution. They provide an overview of revenue performance by segment, including a 1% increase at FedEx Ground and a 3% decline at FedEx Freight. They mention actions that will allow them to grow the business while maintaining excellent service.

In the quarter, international export increased by 4%, while postal volumes were a headwind due to negotiations for a new contract. The market environment remains competitive but rational, with mixed yield trends across segments. FedEx Express saw pressure on yields due to international export demand and increased capacity, while FedEx Ground saw a 1% increase in yield driven by home delivery. FedEx Freight's revenue per shipment was down 1% due to lower fuel surcharges and weights. A 5.9% GRI was rolled out in January and a high percentage of the rate increase was captured. During peak, residential surcharges helped offset higher costs and delivered $120 million in profit.

The company is confident in their strategy for balancing volume and yield growth. They have implemented digital and data-driven solutions to improve the customer experience, such as enhanced healthcare offerings and the FDX commerce platform. The company is proud of their global team and their ability to deliver outstanding service in a dynamic market. In the third quarter, the company saw operating income growth and margin expansion despite declining revenue.

In the quarter, the company saw an increase in adjusted operating income and margin, with Express and Ground performing well. Freight saw a decline in operating income and margin due to various factors. The company has been implementing cost reduction initiatives, including reducing their workforce and making changes to how they approach certain areas. They expect to continue finding opportunities for cost reduction in the future.

The company has achieved $350 million in G&A savings and is transitioning to a centralized global sourcing and procurement structure to generate more cost savings. They are on track to deliver $1.8 billion in savings for the full fiscal year and are reaffirming their adjusted EPS range for the year. They expect a low single digit decline in revenue for the year and anticipate continued profit improvement in the fourth quarter despite lapping certain structural benefits from the previous year. The company will closely monitor global demand, inventory restocking, trade, inflation, and e-commerce trends to inform their revenue expectations. The leap day in the third quarter will impact their typical seasonality.

The company is maintaining its expectations for the full year, with a modest margin contraction at Express and margin improvement at Ground and Freight. They are looking for opportunities to improve their European business and unlock more value across all their businesses. They are assuming a $200 million increase in revenue, $800 million in international export yield pressure, and $300 million in variable compensation increases, but these are offset by $1.8 billion in cost savings from DRIVE. Despite a decline in revenue, they expect a 17% increase in adjusted operating income. The company is focused on reducing capital intensity, increasing stockholder returns, maintaining a strong balance sheet, and improving return on invested capital. They plan to prioritize capital investments on improving efficiency, modernizing facilities, and optimizing their network. Capital expenditures for the quarter were $1.4 billion and year-to-date CapEx was $4 billion.

The company anticipates a decrease in capital spend for the year, with a decline in aircraft-related CapEx and a reduction in facilities. They have retired nine more MD-11s and have completed a $1 billion share repurchase transaction. The Board of Directors has authorized a new $5 billion share repurchase program. The company acknowledges the challenges in the revenue environment but is committed to improving profitability and providing value to customers and stockholders. The first question in the Q&A session is from an analyst at Goldman Sachs.

The company is committed to achieving $1.8 billion in savings for the fiscal year, spread across all operating companies. The savings are predominantly from Ground, but there are also savings being realized at Express. The margin on Express has improved, and the company is focused on continuing this expansion through DRIVE initiatives. They are also excited about future opportunities for savings.

The speaker discusses their focus on Europe and their commitment to the $600 million deal. They also mention a competitive but rational market environment and express confidence in their team's ability to execute on their revenue strategy. They note that there are some headwinds this year, but expect them to diminish next year.

In the fiscal year 2023, the overall air freight market yields are expected to decrease between 30% and 40%, but this is not expected to repeat in the following year. The international demand surcharge will continue to be a challenge in fiscal year 2025, but less so than in the current year. In June, FedEx will complete the legal consolidation of its operating companies, which will bring efficiency and effectiveness to the organization. This will also change how the company manages and reports its financials and operating stats. The company plans to provide sufficient data for investors to track the performance of its business segments.

Raj Subramaniam from FedEx discusses the Tricolor strategy, which aims to improve the company's network utilization, ROIC, profitability, and operating margin. This strategy involves breaking the capacity into three networks (purple, orange, and white) to cater to different types of traffic. The purple network will focus on international priority parcel volume, while the orange network will cater to premium freight traffic. This will allow for better service, improved revenue per flight, and cost reduction.

The speaker notes that they are leveraging existing trucking networks in the US and Europe and will now be moving international freight shipments in their LTL network. This will reduce costs and target the premium air freight segment. They clarify that they are not adding capacity for low yield and profit and will focus on the 80% of global air freight shipments that drive 80% of the weight. They also mention the use of passenger billing capacity for lower yielding e-commerce and deferred track. This will all be managed with rigor and drive for success. The speaker then addresses the strong results for Express during the quarter and mentions potential impacts from fuel and incentive compensation.

The weather had a significant impact on FedEx's operations, but their digital strategies and ability to adapt allowed them to minimize the impact. The company also saw improvements in cost management and flight reductions. The focus remains on reducing costs and further improvements at Express. The use of digital tools and the ability to view FedEx as a network has been beneficial.

The speaker discusses the progress made in implementing the DRIVE and Tricolor plans, which aim to improve network design and reduce costs. The plans were announced about a year and a half ago and have since been adjusted to meet goals by FY24 and FY25. The speaker also mentions Network 2.0 and the use of digital tools, and notes that the teams meet weekly to discuss progress.

The company is seeing mixed results from its programs, with some exceeding expectations and others falling short. They are constantly looking for new opportunities and adapting to a changing environment. The recent improvement in Express' performance was due to a combination of factors, including strong cost controls and a focus on quality revenue. The rollout of Express in Canada is about to be completed.

Brie Carere clarifies that the Canada plan has not changed and that the integration in Canada will begin in April and be completed before peak. Raj Subramaniam discusses management changes in Ground and Express surface operations in the US and the progress of Network 2.0, which aims to deliver $2 billion in savings by the end of fiscal '27. He also mentions that the new leadership structure in the US has resulted in a 10% reduction in P&D costs and improved service levels. The company is focused on implementing Network 2.0 in Canada before peak and expects it to improve the customer pickup experience. John discusses the $1.8 billion of DRIVE savings and $900 million of offset, resulting in $900 million of actual profit.

The speaker is responding to a question about the expected profit improvement for fiscal year 2025 and the potential for further margin improvement in the Ground business. They mention that while the goal is to have $2.2 billion in savings from DRIVE, external factors may impact this. They also express confidence in the sustainability of Ground's margins. The next question is about the possibility of changing the fiscal year from May to a calendar year, and the speaker mentions that the stock price increased after the earnings release.

John Dietrich and Raj Subramaniam address questions about the company's calendar year and their unique story at FedEx. They believe in their long-term strategy and see potential for growth in the next few years. They cannot provide more information about the USPS contract.

The negotiations for a new contract are going well and a decision will be made in days or weeks. Investments will be needed for the integration of Network 2.0 in Canada, but the benefits will outweigh the costs. The team is confident in their execution and is being disciplined and methodical in their approach, giving customers advanced notice.

The company is anticipating being able to maintain the same level of service after the merger, but they are still giving customers advanced notification. The single pickup feature will be closed, which is important for their small customer segment. The company has seen significant service improvements, especially at Ground, due to discipline and daily execution. The integrated leadership team is expected to extend these improvements across the entire network. Brie Carere, who holds the operators accountable, is appreciative of their performance.

Conor Cunningham from Melius Research asks about FedEx's e-commerce return business and their potential partnership with Amazon. Brie Carere, FedEx's executive vice president and chief marketing and communications officer, discusses the company's strong returns portfolio and their new FDX platform that offers both physical and digital capabilities for retailers and merchants. Raj Subramaniam adds that the platform is user-friendly and easy to set up. Scott Schneeberger from Oppenheimer asks for an overview of FedEx's peak season and any key takeaways or learnings.

The speaker discusses the challenges of managing peak season in the condensed 2024 calendar, but expresses confidence in their ability to plan ahead and manage peak from a service, customer, and profitability perspective. They also mention the success of their peak surcharge capture and the use of integrated planning with Dataworks. The other speaker adds that lower line haul expenses contributed to margin expansion and cost control at Ground.

The company achieved lower rates on planned line haul purchases and is optimizing their network through DRIVE and Network 2.0, including first and last mile services. They are also leveraging existing capacity to improve margins. The operator then concludes the call, thanking the team for their hard work and dedication to building a flexible and efficient network.

This summary was generated with AI and may contain some inaccuracies.