The operator introduces the FedEx Fiscal Year 2024 Fourth Quarter Earnings Call and reminds participants of the call's format. Jeni Hollander, Vice President of Investor Relations, welcomes everyone and provides information on where to find the earnings release and slides. She also mentions that the call is being recorded and sets guidelines for the Q&A session. She then discusses the possibility of forward-looking statements and non-GAAP financial measures. Raj Subramaniam, President and CEO, Brie Carere, Executive Vice President and Chief Customer Officer, and John Dietrich, Executive Vice President and CFO, are introduced as participants on the call. Raj Subramaniam expresses satisfaction with the company's fourth quarter performance and overall execution for the year.

In FY 2024, the company saw growth and margin expansion in all quarters, achieved their capital intensity target a year early, and returned $4 billion to stockholders while improving their return on invested capital. Despite a challenging demand environment, they delivered earnings towards the higher end of their guidance range, advanced their network transformation, and maintained a strong focus on customer service, innovation, and their culture. In the fourth quarter, they saw positive revenue growth and improved operating income, margins, and earnings per share, with Ground delivering its highest operating income in company history and Freight seeing an increase in operating income despite weak demand.

In the fourth quarter of fiscal year 2024, freight had a strong performance and ended with an operating margin equal to the previous year's high. Adjusted Express operating margin increased sequentially but declined year-over-year as expected. The company achieved its target of $1.8 billion in structural cost savings, with significant savings coming from the air network, G&A, and surface network. The company is on track to achieve $4 billion in savings by FY 2025. In Europe, the company is executing on a $600 million savings target and has a new Europe Regional President, Walter Roles, who has been leading the Europe DRIVE domain since its inception in 2022.

The team at FedEx is working hard to improve efficiency and performance, with plans in place for further improvements in the future. The recent consolidation of FedEx Express, FedEx Ground, and FedEx Services into Federal Express Corporation has already shown benefits in terms of efficiency and cost reduction. The company is also implementing Network 2.0 and leveraging data to create a more flexible and efficient network. A new tool has been introduced to track and improve key operating metrics, with plans to scale it globally. These efforts aim to maintain strong service levels and offer a wide range of services to customers.

In the past fiscal year, 65% of service providers using the platform have seen improvements in service and safety, leading to cost savings. The company expects continued growth in the next fiscal year and is conducting an assessment of the role of FedEx Freight in their portfolio to further increase shareholder value. The company is also focused on customer satisfaction, team member commitment, and safety. They are on track to achieve cost savings targets and have a strategy in place to improve efficiency and asset utilization.

In the paragraph, Raj and Brie discuss the company's future plans and their confidence in achieving a 10% adjusted operating margin on $100 billion revenue. They also congratulate the team on their outstanding Q4 and full year performance, with a focus on profitable growth and gaining market share. They then review the fourth quarter top line performance by segment, with revenue growth turning positive and volume stabilizing. They also mention the pressure on yields due to various factors, but note that volumes continue to improve in certain areas.

FedEx Freight's shipment volumes improved in the quarter and they will continue to meet service commitments until their contract with the USPS expires. After the contract ends, they will make adjustments to drive efficiency and flexibility. The pricing environment remains competitive but rational, and the company saw growth in yield due to a focus on profitable growth and revenue quality. In particular, Express and Ground saw increases in yield, while Freight had its strongest performance in years. The company is pleased with their capture rate on a recent GRI and expects fuel surcharge increases to benefit yields in the future. They continue to enhance their portfolio and value proposition to drive profitable growth, with a strong focus on their healthcare portfolio.

Last year, FedEx increased its focus on the healthcare segment and saw positive results, with over $1 billion in revenue from customers using the FedEx Surround platform. This platform provides real-time visibility and helps customers monitor and solve supply chain challenges. FedEx also prioritizes high-value areas like clinical trials and has opened a state-of-the-art Life Sciences Center in the Netherlands. In addition to healthcare, FedEx's e-commerce portfolio is strong, with the best speed, coverage, and capabilities. The recent launch of picture proof of delivery APIs has been well-received by customers, and several large retailers have already signed pricing agreements for this new feature. This represents the first of many successes for FedEx's new FDX platform.

In fiscal year 2025, the demand environment is expected to moderately improve, with increases in US domestic parcel and LTL volumes and international air cargo demand. This growth will be driven by e-commerce and low inventory levels, but shippers are facing challenges due to tightened capacity and disruptions in the Red Sea. The company's outstanding team, strong value proposition, and new digital solutions will continue to drive success in the upcoming year. In fiscal year 2024, the company achieved $6.2 billion in adjusted operating profit, a 16% year-over-year improvement, with a 110 basis point expansion in adjusted operating margin and a 19% increase in adjusted EPS. They also reduced capital intensity, returned nearly $4 billion to stockholders, and saw strong performance in their Ground division in the fourth quarter.

In the fourth quarter, the company's adjusted operating income increased by $133 million and operating margin expanded by 130 basis points due to progress on DRIVE, increased yield, lower self-insurance cost, and commercial volume growth. Freight saw an increase in operating income and improved margin due to higher yield and focus on revenue quality and cost management. Express, however, saw a decrease in operating income and margin due to lower international yield, higher transportation costs, and incentive compensation. The company also announced a planned reduction in non-operational staffing in Europe to improve profitability. Additionally, the company retired 22 Boeing 757 aircraft and seven engines, and plans to retire 31 jet aircraft in the future to right size their air network capacity.

The company has adjusted their earnings outlook for the year to be between $20 to $22 per share. They expect low to mid-single digit revenue growth, driven by improved trends in domestic parcel and international export demand. They will also focus on managing costs and anticipate the newly combined Express, Ground, and Services segment to be the main driver of income and margin improvement. There may be headwinds in the second quarter due to the expiration of a contract with the US Postal Service, but they expect to reduce costs in the second half. The estimated effective tax rate is 24.5% and there will be $560 million in business optimization costs associated with their transformation.

The company's operating income bridge outlines the factors that will impact their adjusted operating profit for the year, including revenue, contract termination, yield pressure, and variable compensation. Despite these challenges, the company expects to see a 15% increase in adjusted operating income for fiscal year 2025, thanks to their cost-saving initiative DRIVE. They are also focused on reducing capital intensity, increasing return on invested capital, and providing stockholder returns. In the fourth quarter, they completed $500 million in accelerated share repurchases, bringing the total for the year to $2.5 billion.

In the fiscal year 2025, the company expects to have a capital spend of $5.2 billion, with a focus on optimizing their network and improving operating efficiency. They plan to decrease aircraft CapEx to $1 billion in fiscal year 2026 and anticipate continued growth in adjusted free cash flow. The company also plans to deploy $2.5 billion in stock repurchases and increase their dividend by 10%. They also plan to make voluntary pension contributions to their US qualified plans. The company has completed the consolidation of Express, Ground, and Services into Federal Express Corporation and will have two reportable segments in FY 2025: Federal Express and FedEx Freight, with no changes to corporate and other. This change reflects their commitment to operating a fully integrated air and ground Express network.

The speaker emphasizes the importance of optimizing Express services and reducing costs despite the consolidation of Express and Ground. They believe this consolidated structure will support their objectives and provide a more efficient network. They plan to provide more details on volume and yield in the future. The speaker thanks the team for their efforts in delivering strong results despite challenges and is confident in achieving even stronger results in the future. In regards to Express margins, they have improved sequentially and there are some headwinds from the USPS contract shift that may impact margins in the near term.

The company's top priority is to improve the performance of its Express services business. They are taking multiple actions, including aligning capacity with demand, restructuring their network, improving their European performance, and streamlining global SG&A. The company is confident that they can unlock significant value in their Express services business. The $500 million postal headwind will have a significant impact on earnings for the year, but the company is working to offset this decline and will provide updates along the way.

In this paragraph, the speaker, John Dietrich, discusses the company's plans to mitigate the $500 million in costs that they will be facing. He mentions that they have a good understanding of where these costs will impact them the most and that they will aggressively go after them in Q2 and Q3. He also mentions that the company is currently assessing the portfolio structure of FedEx Freight and will communicate any changes when they have more information. The speaker, Raj Subramaniam, adds that all options are on the table for the LTL division, including a spin or sale of assets. Dietrich also mentions that the company is looking to improve revenue year-over-year and that the first step in this will be navigating the dip in revenue caused by the end of their contract with USPS in Q2.

In this paragraph, Raj Subramaniam and John Dietrich discuss the company's analysis of FedEx Freight and its portfolio structure. They mention that they will not give quarterly guidance by segment, but anticipate normal seasonal trends to hold steady in the first quarter of fiscal year 2025. They also mention some events that will impact the second quarter, including the termination of the U.S. Postal Service contract and Cyber Monday moving from the third quarter of last year to the second quarter of this year. They then take a question from Conor Cunningham about the company's revenue assumptions and mention that they are expecting moderate improvement in the macro environment and 2% growth in the B2B market. They also note that e-commerce is ahead of that and has seen a 1% increase year-over-year.

The speaker is optimistic about the company's e-commerce fundamentals and expects modest improvement in the air cargo market. They also plan to take some market share in their profitable target segment. The speaker acknowledges the need for careful monitoring and adjustments as needed. The integration of the networks is going well and is delivering multiple benefits. The transition in Canada will be completed in the first half of fiscal year 2025 and will pick up pace in fiscal year 2026. The speaker is confident about the company's execution and transition to One FedEx.

John Dietrich, Raj Subramaniam, and Brie talk about the company's guidance for FY 2025 and the factors that were taken into account. They expect a modest improvement in demand and are focused on aligning costs and executing their revenue quality strategy. They also mention the importance of controlling things within their control and highlight the $2.2 billion investment in DRIVE. In response to a question about the integration of Network 2.0, Raj assures investors that they are taking steps to mitigate risks and improve the customer experience. Brie may comment on this further.

The speaker discusses the rigorous process of DRIVE and the importance of following it carefully to improve customer experience. They mention that they have built in the right pace and cadence for the project and have not needed to pause. The speaker also mentions the strong service at FedEx and the benefits of the domestic network. The next question asks for more information about the changes in Europe and the $600 million improvement there, which is a top priority for DRIVE.

John and Raj discuss their recent trip to Europe and the urgency of improving operations there. They mention new leadership and the opportunity to leverage expertise from the US team. Raj emphasizes the potential in the intra-Europe theater and the work being done to improve service and reduce costs. John clarifies that the $2.2 billion mentioned earlier is both gross and net and that it is mostly in their control, independent of external factors.

The company expects low to mid-single digit revenue growth for the year, with a blend of yield and volume. The revenue plan will be largely volume-driven, particularly from deferred and e-commerce, which is expected to outpace B2B growth. The $2.2 billion cost initiative is structural and within the company's control, and they will adapt aggressively to changes in the demand environment.

Brie Carere discusses the demand environment and the upcoming peak season, mentioning that they had a successful peak last year and are confident about this year. She also mentions increased collaboration and integration with retailers and expanding peak best practices globally.

Raj Subramaniam and John Dietrich discuss FedEx's expected low single-digit volume growth for the year and their commitment to achieving $2.2 billion in savings through their DRIVE initiative. They mention plans to optimize processes, improve efficiencies, and reduce costs in their surface network and Express operations, as well as in G&A, IT, and procurement. They also mention that they will keep investors updated on the progress of these plans. When asked about the potential benefits of separating the Western truckload business, Subramaniam declines to comment further and says a thorough analysis will be done before any decision is made. In response to a question about headcount reductions in Europe, it is confirmed that they are part of the DRIVE initiative and will contribute to the $2.2 billion in savings, but the full benefit will not be seen until FY 2027.

The speaker, John Dietrich, discusses the company's actions in relation to cost cutting and revenue generation in Europe. He mentions that these actions align with the company's philosophy and will result in cost savings. The next question is directed to Raj Subramaniam, who is asked about the decision to review the Freight and Tricolor network strategy. Raj explains that the review was prompted by shareholder input and there will be no changes to the Tricolor network strategy. The next question is directed to Brie, who notes that the company has been successful in capturing pricing despite the current environment.

Brie Carere, UPS's Chief Marketing Officer, discusses the current pricing environment, stating that it is competitive but rational. The team has been disciplined in maintaining yield increases and focusing on getting yield in the right place. She also mentions that the team has done a good job in getting peak surcharges and working closely with operations. The next question is about the potential impact of tariffs on customer discussions, especially with regards to China e-commerce. Brie mentions that they have a few big direct e-commerce customers and the risk to volumes if there is a change in trade policy.

Brie Carere and Raj Subramaniam discuss the impact of e-commerce on FedEx's revenue and the company's ability to adapt to changing trade patterns. They emphasize the importance of having a diversified customer base and a global network, which allows them to quickly react to changes in the market. They also mention the opportunities that arise as supply chain patterns shift.

Raj Subramaniam concludes the question-and-answer session by congratulating Rob Carter on his retirement and welcoming Sriram Krishnasamy into his new role. He expresses pride in FedEx's strong performance and focus on profitability, stockholder returns, and customer service. The conference has now ended.

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