The operator welcomes listeners to the FedEx Fiscal Year 2025 First Quarter Earnings Call and introduces Jeni Hollander, Vice President of Investor Relations. Hollander provides information on where to access the earnings release and other materials, and mentions that the call is being recorded. She also mentions that there will be a Q&A session with limited questions per caller. Hollander then cautions that certain statements made during the call may be considered forward-looking and refers listeners to the company's website for more information. She also mentions that non-GAAP financial measures will be discussed and directs listeners to the company's website for a reconciliation of these measures. Raj Subramaniam, President and CEO, then takes over and discusses the company's results, which were impacted by a weaker-than-expected demand environment in the U.S. domestic package market.

The company's performance on a year-over-year basis has been affected by weakness in the industrial economy, increased demand for lower-yielding services, and structural cost reductions. However, the company remains confident in its trajectory and is on track to deliver $4 billion in savings through DRIVE by FY '25. The company has implemented new pricing actions and is making progress on its network transformation, including the implementation of Tricolor. These actions will drive improved profitability and support the company's objectives. Additionally, the company's data-driven solutions are also contributing to its transformation and improving the customer experience.

The company has narrowed its adjusted EPS outlook range for the fiscal year and achieved $390 million in DRIVE-related savings in the first quarter. These savings were achieved through efficiency initiatives in Surface, Air and International, and G&A operations. The company expects these savings to increase throughout the year and most of the Europe-related savings will come in the second half of the fiscal year.

The progress made in Europe is encouraging, with improved service levels, reduced churn, and new business despite difficult market conditions. The company expects $600 million in savings from Europe and will focus on managing their fleet and optimizing functions globally. Network 2.0 is being rolled out in select markets, with Canada as the biggest optimization yet. The company is taking a coordinated approach to maintain customer service and is seeing a 10% reduction in pickup and delivery costs in markets where Network 2.0 is fully rolled out. They are also using new technologies, such as the Shipment Eligibility Orchestrator, to improve service quality.

In Network 2.0, Shipment Eligibility Orchestrator is used to direct high-priority healthcare and time-sensitive shipments to designated couriers. The Hold-to-Match solution was successfully piloted in the first quarter and will help optimize last-mile delivery costs. FedEx has announced a strategic alliance and investment with Nimble, an AI robotics and e-commerce fulfillment technology company. FedEx is conducting an assessment of the role of FedEx Freight in their portfolio structure and it is on track to be completed by the end of the year. Mark Allen, General Counsel and Secretary of FedEx, is retiring after 42 years of service and will be succeeded by Gina Adams.

The article discusses the leadership of Gina Adams in Government and Regulatory Affairs at FedEx since 2001. The company's team is thanked for their hard work and dedication in transforming the network and preparing for peak season. Brie Carere, a representative from FedEx, discusses the company's strong value proposition and growth in profitable market segments. The first quarter top-line performance is also reviewed, showing a decline in revenue at Federal Express and FedEx Freight due to factors such as one fewer operating day and a mix shift towards deferred services.

In the first quarter, FedEx saw a 2% increase in revenue per shipment and maintained a strong revenue share in the LTL market. However, overall volumes were down, with a 3% decline in U.S. domestic express services and a 3% decline in weight per shipment and average daily shipments at FedEx Freight. This was partially offset by a 9% increase in international export package volumes. The company attributes the decline in freight volume to a shift to the truckload market due to excess capacity and lower rates. The company also mentions that they will be making network adjustments after their contract with the United States Postal Service expires. Despite a competitive pricing environment, FedEx remains focused on revenue quality and saw a 1% increase in package yield overall, driven by U.S. priority and international domestic services.

The combined international priority and economy parcel yield decreased due to lower demand surcharges, while FedEx Freight saw a 2% increase in revenue per shipment. The LTL pricing environment remains disciplined and rational, and the company has announced several pricing actions to improve yield in the coming quarters. They expect a high GRI capture this year and have increased fuel surcharges and announced new demand surcharges to cover peak costs during the holiday season. The company now expects low single-digit revenue growth for FY '25, with moderate improvement in the demand environment driven by economic recovery, e-commerce growth, and low inventory levels. They anticipate improvement in the pricing environment and parcel volume in the second half of the fiscal year, and LTL shipments are expected to turn positive later in the year. The company believes that the current market requires a provider with a portfolio of both Express and Deferred parcel and air freight solutions.

In the first quarter, FedEx implemented their Tricolor strategy to improve profitability in their international business. This includes optimizing operations, implementing pricing changes, and launching new services such as the FedEx International Deferred Freight Service. They also have plans for peak season, including improved shipment visibility and a new Picture Proof of Delivery feature. Despite a challenging environment, FedEx remains confident in their pricing actions and service advantages. John Dietrich then discusses the financials in more detail, explaining the quarterly dynamics on a year-over-year basis.

The company's first quarter results were negatively impacted by soft revenue trends, resulting in a decline in priority volume and growth in deferred volume. This led to lower yield growth and increased purchase transportation expenses, as well as a decrease in operating days. However, the company was able to partially offset these factors with cost savings from DRIVE. Adjusted operating profit at Federal Express decreased, mostly due to the revenue softness and shift towards deferred service offerings. However, international economy growth provided a small benefit to profitability and is expected to continue improving with the execution of Tricolor.

FedEx's Q1 performance did not meet expectations due to lower revenue and profit flow-through from U.S. premium services. As a result, the company is adjusting its U.S. domestic network and narrowing its FY '25 EPS outlook range. The expected earnings cadence for the remainder of the fiscal year includes a negative effect in Q2 from the U.S. Postal Service contract termination and the timing of Cyber Week. However, the company expects better-than-normal seasonality in the second half of the fiscal year due to ramping DRIVE savings. The updated full-year operating income bridge shows adjusted operating profit of $7 billion, equivalent to $20.50 adjusted EPS, the midpoint of the outlook range.

The company expects a $100 million headwind in revenue due to lower revenue and volume mix changes. They also anticipate a $500 million headwind from international export yield pressure, $300 million from two fewer operating days, and $500 million from the U.S. Postal Service contract termination. However, they are confident in their ability to offset these headwinds with $2.2 billion in savings. They also expect to see adjusted operating margin expansion at Federal Express and a modest decline at FedEx Freight. The company plans to invest $5.2 billion in capital expenditures and continue to improve their ROIC. They have completed $1 billion in stock repurchases and plan to repurchase an additional $1 billion in the next quarter.

Brie Carere, the speaker, is confident in the transformation initiatives underway and believes they will lead to improved profitability in the future. The first question from Brian Ossenbeck is about the negative mix shift and the possibility of pushing through additional demand and fuel surcharges and a GRI. Brie explains that they have studied the market and are confident in their pricing strategy, including the anticipated GRI in January. She also mentions the necessity of demand surcharges for profitability and delivering good service, especially during the busy holiday season.

The speaker expresses confidence in the company's ability to capture demand and grow yield in the international market. They also discuss the pressure on demand surcharges in the first quarter and anticipate it will improve throughout the year. They cannot provide specific quarterly guidance, but expect a lower-than-normal second quarter EPS due to the U.S. Postal Service contract termination. They are confident in a sharp ramp up in the second half, but cannot disclose the specific factors contributing to this.

John Dietrich, in response to a question about the company's EPS outlook, explains that there will be a headwind in Q2 due to the timing of Cyber Week, but they expect better-than-normal seasonality in the second half of the fiscal year thanks to increased DRIVE savings and revenue actions. He also addresses the lower-than-expected $390 million in DRIVE savings in the first quarter, stating that some initiatives may under-deliver or take longer to produce results, but they are still committed to reaching their $2.2 billion target for the fiscal year.

The speaker explains that the increase in purchase transportation costs is due to three main factors: higher freight forwarding revenue, contracted service provider pickup and delivery, and air commercial linehaul. They also note that this is a significant expense for the company, totaling over $4.7 billion.

John Dietrich, COO of FedEx, discusses the three elements that contributed to the $140 million increase in PT expenses in the first quarter. These include ordinary course increases, efficiency gains, and additional commercial airline haul capacity. He also mentions that the company is investing in Tricolor and that these volumes were contributory to the year-over-year profit. The company is also looking to invest in areas of the business with the best return on investment, including freight, and will continue to manage capital intensity. The company's strategic review for the freight segment is ongoing and an update is expected by year-end.

FedEx's year-over-year performance has been positive, with flat expectations and sequential reductions. They attribute this to their integrated plan and are committed to profitably growing their portfolio. In terms of the second quarter, they are optimistic about earnings being up sequentially. Brie adds that they are not constraining growth at FedEx Freight due to capital allocation and are always looking for opportunities to expand. On the pricing side, they have announced peak season surcharges and are monitoring customer compliance.

The company expects to see sequential quarter-over-quarter profit improvement due to revenue and pricing actions, as well as DRIVE savings. They are confident in their ability to capture demand surcharges and have made changes to their methodology. Despite challenges affecting the top-line, the company saw a significant impact on earnings in the first quarter. They are confident in their ability to flex their network and adjust to challenges that may arise.

During a recent earnings call, FedEx executives discussed the company's performance in the first quarter of the year. They highlighted the success of their initiatives, including DRIVE, FedEx One, and Tricolor, which are all aimed at improving efficiency and profitability. However, despite these efforts, the company's profits were lower than expected and EPS is below the projected range for the full year. The team is constantly monitoring demand and adjusting their network to improve performance.

The speaker is addressing concerns about the company's credibility with investors due to low earnings and rising costs. They mention the impact of a weak industrial economy and the need for adjustments. However, they remain focused on controlling what they can and have had success with cost reduction and revenue initiatives. They express confidence in meeting their guidance and mention specific examples of their DRIVE method and growth opportunities.

The company is focusing on optimizing staffing and enhancing efficiency across all segments, including implementing technology tools. They are also looking at opportunities for growth in their air network, particularly in Europe, and leveraging their expertise in ground operations. Progress is being made on reducing general and administrative expenses, and the company's plans for demand and fuel surcharges were not originally included in their assumptions for June.

The industrial economy has negatively impacted B2B volumes this quarter, and the S&P U.S. manufacturing PMI has reached its lowest reading of the year. However, e-commerce is starting to grow again, with 16% of retail sales coming from online sales in Q2.

The company is seeing modest improvement in global trade data, with trade up 1.8% year-over-year in June. This growth has been driven by Asia. The Fed rate cuts signal the weakness of the current environment, and the company is not expecting a significant comeback in the industrial sector for the rest of the year. They remain focused on what they can control and are confident in their ability to deliver on their guidance. The company is also monitoring potential port disruptions, which could favor air freight. The next question is about the ongoing strategic review for the LTL division, and the speaker says they cannot comment on the outcome yet. The question also brings up the possibility of strategic options for the Europe business if it cannot become profitable.

The assessment of the company's performance is on track to be completed and communicated by the end of the year. Europe is a top priority for the executive team and they are focused on improving profitability and cost efficiency. The financial performance in Europe has already improved and the team is implementing strategies from the successful U.S. operations. The company is also working on optimizing their service network and making organizational changes to drive improvement in Europe.

The company is confident in their expected improvement in Europe and has the right leadership in place. They cannot comment on the freight business at this time. The earnings for the remainder of FY '25 are expected to be front and back loaded, with continued improvement through the year. There has been mention of strong Asia export volumes.

The speaker is discussing the expected volume of exports from Asia for the rest of the fiscal year, with a focus on the big two or three Chinese e-commerce players. They mention a productive relationship with these players, but note that it will not be a significant growth driver for the company. They also do not anticipate any major risks during peak season as a result of this relationship.

The speaker clarifies that the Tricolor optimization will improve margins for the international system, and deferred volumes will continue to drive industry growth. There is still confusion about the margin outlook, but the company expects margins to be up both sequentially and year-over-year due to the DRIVE savings and recent pricing actions. The goal is to reach a 5% combined margin and break-even with peers at 20%, but this will take time and is not a guarantee. Overall, the company is focused on profitable growth.

Raj Subramaniam, President and COO of FedEx, discusses the company's recent challenges and highlights the positive developments that will contribute to its future success. These include the implementation of Network 2.0, improvements in Europe, and the Tricolor restructuring. He also mentions the $4 billion in cost savings from the DRIVE initiative and the company's commitment to delivering exceptional customer experiences. He thanks the FedEx team for their hard work and concludes the conference call.

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