The paragraph is the introduction to FedEx's Fiscal Year 2025 Second Quarter Earnings Call. The operator initiates the call, and Jeni Hollander, Vice President of Investor Relations, welcomes participants and provides information about the availability of the earnings release, freight assessment results, Form 10-Q, and related materials on the FedEx website. She informs listeners that forward-looking statements will be made, which are subject to risks, as detailed in their press releases and SEC filings. Non-GAAP financial measures will also be discussed, with corresponding reconciliations available online. Key speakers include Raj Subramaniam, Brie Carere, and John Dietrich. Raj Subramaniam thanks FedEx team members for their efforts during the peak holiday season.

FedEx is planning to separate FedEx Freight into a standalone public company, creating two industry-leading public companies. This move aims to unlock value for stockholders, while maintaining cooperation between the entities. The separation allows each company to focus on its strategic priorities and enhance competitiveness. FedEx Freight, as an independent company, will become a leading less-than-truckload (LTL) carrier, benefiting from its deep customer relationships, market share, and improved financial performance. The company will focus on safety, efficiency, and profitability, underpinned by a strong balance sheet.

The paragraph outlines FedEx's strategy to enhance its LTL (less-than-truckload) services by expanding its sales force, improving pricing and invoicing systems, optimizing network efficiencies, and implementing automation. Tom Connolly leads the growth as VP of LTL Sales. FedEx aims to build a team of over 300 specialists and enhance its service offerings, including priority and economy solutions, to benefit from industry dynamics. Despite the separation of FedEx Freight as a distinct entity, cooperation with FedEx and leadership by Lance Moll will ensure seamless service and operational efficiencies, particularly in line haul services during peak periods.

The paragraph discusses FedEx's strategic initiatives, highlighting the minimal changes needed as freight benefits from existing agreements with Federal Express. Shared technology and service agreements will enhance the transition, with the new company continuing under the FedEx Freight name, ensuring continued superior service. FedEx, a leader in the Express Transportation industry, delivers millions of packages worldwide daily, boasting extensive global coverage and significant data generation for operational efficiency. The company's ongoing progress and strategic initiatives aim to maintain its leadership and deliver substantial value to stockholders.

The paragraph discusses FedEx's initiatives to enhance efficiency, reduce costs, and drive strategic growth. Key projects include DRIVE, aiming for $4 billion in savings by FY '25, and Network 2.0, targeting $2 billion in savings by FY '27. The Tricolor project focuses on optimizing the global air network. FedEx is committed to maintaining a strong financial profile, prioritizing investments, and increasing shareholder returns. The company plans to complete a separation within 18 months under the leadership of Claude Russ, focusing on clear accountability and progress updates.

The paragraph discusses FedEx's strategy to separate into two strong, well-capitalized industry leaders: FedEx and FedEx Freight. This separation aims to enhance competitiveness and capital allocation, ensuring sustainable, profitable growth and long-term stockholder value. The company assures employees and customers a seamless transition while maintaining service quality. In Q2, FedEx showed improvement in DRIVE savings and operating profit, especially at FedEx Express with a 13% increase in operating profit despite flat revenue and challenging conditions like weaker B2B volumes and market pressure on the Freight segment. The company expects future growth when the industrial economy recovers.

The paragraph discusses FedEx's strategic efforts to enhance flexibility, efficiency, and intelligence in response to market dynamics. Highlighting $540 million in savings from the DRIVE program in Q2 and a goal of $2.2 billion by FY'25, it mentions the ongoing Network 2.0 rollout and Canadian market integration set for early 2025. With the end of the U.S. Postal Service contract, the company is aligning capacity with demand to improve package transport efficiency. Significant reductions in U.S. domestic flight hours and costs occurred in September. Despite a shorter peak season, FedEx is maintaining high service quality and fast delivery times. Looking ahead, the company is focused on transformation initiatives to lower costs and enhance performance, though it has adjusted its FY'25 EPS outlook to $19-$20 due to demand uncertainty. DRIVE has become more than just a cost optimization tool for FedEx.

The paragraph outlines FedEx's efforts to enhance its European operations through a new data and technology-driven business model, aimed at improving efficiency and accountability. It highlights the introduction of new leadership and best practices from the U.S. to optimize the European ground business. The company expects significant DRIVE savings and reports recent successes, including revenue growth and improved performance. FedEx has implemented a common data platform to better understand and optimize its European network, leading to increased efficiency through improved routing and reduced package handling. Additionally, it has introduced dimensional pricing in Paris, which accurately compensates for transporting packages with unique dimensions. This technology-driven strategy will be expanded to other European facilities in the coming year.

The paragraph discusses several initiatives by a company, likely FedEx, to enhance its operations and financial performance. It highlights improvements such as non-stackable shipment surcharges expected to generate significant operating income in FY '25, a new sorting facility at the Memphis World Hub, and the ongoing rollout of Network 2.0. These efforts aim to modernize operations, improve employee and customer experiences, and optimize network design. Despite a 1% revenue decline due to a weak industrial economy, the company's solid service levels and innovative offerings have positioned it well for a successful peak season. The leadership team is focused on European market improvements, and there's confidence in future opportunities.

The manufacturing PMI has shown a prolonged contraction, marking the second longest downturn in U.S. history. Federal Express experienced flat revenue, as higher yields were offset by declining volumes, particularly with a shift in customer preference towards lower yielding services like ground economy. FedEx Freight faced challenges with lower volumes and fuel surcharges impacting revenue, compounded by customers seeking lower prices after the yellow bankruptcy. U.S. domestic volumes declined due to industrial weakness and a soft B2B environment, though international export package volumes grew by 9%, driven by strong international economy trends. Ground residential volumes faced unfavorable comparisons due to timing of Cyber Week shifts. Despite these challenges, FedEx is positioned to capture profitable growth when the market recovers.

The paragraph reports on performance metrics for various FedEx services. International priority freight within the FedEx Express (FEC) saw a 10% increase, and international economy freight grew by 5% in daily average pounds, indicating progress in its strategy for profitable growth. FedEx Freight experienced declines in shipment weight and volume due to a weak industrial economy, while revenue quality efforts show promise. Package yield improved slightly, primarily due to international and domestic priority services, though Ground Services overall yield remained flat, affected by Ground Economy performance. FedEx Express Freight saw a 4% increase in composite freight yield due to decreased postal service volumes and effective commercial strategies. FedEx Freight's revenue per shipment fell by 4%, impacted by reduced fuel surcharge revenue and lighter shipments. The company projects increased demand surcharge revenue for the peak season and anticipates slight revenue growth in the second half of fiscal year 2025. December volumes have exceeded expectations, and a general rate increase planned for January is expected to capture substantial revenue.

The paragraph discusses Federal Express's revenue growth strategy for the second half of the year, emphasizing ground residential and international volume growth, particularly in Asia and Europe. Despite a slight anticipated revenue decline at FedEx Freight due to shipment softness, they plan to hire 300 LTL specialists to enhance customer support and accelerate growth. The company's commercial strategy aims to make the supply chain smarter, positioning themselves as key partners for customers by offering superior digital solutions and customer experiences, particularly through the FDX platform. In fiscal year 2026, they will transition their fedex.com customer base to this platform to enhance capabilities. The strategy targets growth in high-value segments, such as B2B for healthcare and automotive, domestic e-commerce, global airfreight, and Europe, with notable success already seen in the healthcare sector.

FedEx is focusing on several key growth opportunities, including the healthcare, automotive, U.S. e-commerce, and global air freight markets. In healthcare, they aim to increase U.S. market share and expand internationally by utilizing their cold chain logistics and other specialized services. In the automotive sector, they have identified a $10 billion market and aim to offer premium supply chain services by fiscal year 2026. E-commerce is expected to drive 90% of U.S. parcel growth, with FedEx leveraging its speed, coverage, and delivery proof to sustain competitive advantage. The company is also targeting the global air freight market, where it holds a small market share, by enhancing its sales organization, customer service, and digital experience to boost profitability and growth.

The air freight market is outdated and fragmented, presenting opportunities for disruption, especially in Europe, where the parcel market is valued at $130 billion and growing. The company's European operations are thriving, primarily driven by B2B revenue. They are improving service and cost efficiency through initiatives like DRIVE and leveraging AI. Non-standard surcharges have increased annual revenue by over $180 million, thanks to an AI image capture process. Plans to enhance capacity management using a digital network twin and AI are underway. The company is proud of its team's efforts, having grown adjusted operating profit by $170 million and increased earnings per share despite a 1% revenue decline, largely due to the Federal Express segment.

The paragraph discusses the financial dynamics affecting the company's quarter results, primarily focusing on the impact of a soft global industrial economy and the expiration of a Postal Service contract, which posed significant headwinds. Despite these challenges, the company achieved year-over-year growth in adjusted earnings, aided by $540 million in DRIVE benefits. Specifically, Federal Express increased its adjusted operating income by $146 million, thanks to cost savings, improved yields, and higher international export demand, despite facing inflationary pressures and disruptions like Cyber Week timing and a hurricane. The European operations also contributed positively through network optimization. However, there was a significant reduction in U.S domestic flight hours due to the Postal Service contract expiration. At FedEx Freight, operating profit declined by $179 million, with $30 million of that due to a previous gain on sales, and the segment faced pressures from lower shipments and fuel surcharges, which were partly mitigated by cost management and yield growth.

In the second quarter, the company achieved substantial cost savings of $540 million through various initiatives, including IT optimization and increased third-party rail usage, as part of its DRIVE program. Despite these improvements, challenges in the global industrial economy have led the company to revise its fiscal year 2025 earnings per share (EPS) outlook downward to $19-$20 from a previous $20-$21. For the second half of the fiscal year, the company expects continued growth in DRIVE savings, bolstered by Cyber Week and revenue quality actions, but anticipates that challenges from postal service costs will offset some of these gains. Overall, DRIVE savings are projected to reach $2.2 billion for the full year.

In the paragraph, FedEx Freight anticipates ongoing challenges in the U.S. industrial economy and lower fuel prices to impact its operating profit for the rest of FY '25. Despite expecting these difficulties, it predicts a strong fourth quarter, albeit with one less operating day. The company's updated outlook now projects an adjusted operating profit of $6.6 billion, equivalent to $19.50 EPS, factoring in increased revenue headwinds of $700 million and $300 million from international export yield pressures, which have improved from previous estimates. Additional financial pressures include two fewer operating days and the expiration of a U.S. Postal Service contract, collectively resulting in a $500 million headwind. FedEx Freight plans to counter these challenges with $2.2 billion in savings from DRIVE initiatives and maintaining revenue quality through rate increases and surcharges. Overall, Federal Express expects margin expansion, while FedEx Freight foresees margin contraction, assuming a 9.6% EPS growth with stable revenue.

The paragraph discusses the company's efforts to adapt to changing business environments, specifically highlighting the impact of their DRIVE initiative on cost structure and e-commerce growth. It emphasizes the priority of unlocking business value and outlines plans for capital allocation, including maintaining capital expenditures of $5.2 billion for FY '25, which aligns year-over-year and supports strong adjusted free cash flow. The company completed $2 billion in share repurchases year-to-date, with an additional $500 million planned. Confidence is expressed in growing earnings and increasing shareholder returns. During the Q&A, Chris Wetherbee from Wells Fargo questions the guidance for the year's second half, noting industrial production outlook and pressures on the LTL and freight business.

The paragraph involves a discussion led by John Dietrich, addressing questions about financial guidance and the timing of revenue and savings. Dietrich explains that the company's updated earnings per share (EPS) forecast reflects revised revenue expectations due to lower-than-anticipated volumes. He outlines that improved results are expected in the third quarter due to factors like DRIVE savings and Cyber Week benefits. However, these gains will be partially offset by headwinds from the USPS. DRIVE savings are expected to increase through Q3 and Q4, with Q4 traditionally being the strongest earnings quarter despite one less operating day. The operator then moves to the next question from Ken Hoexter, who congratulates on freight spend achievements and directs a question to Brie about the shifting peak season.

In the paragraph, Brie Carere discusses FedEx's December performance, noting that volumes have exceeded forecasts, particularly after Cyber Monday. Despite anticipating strong performance in December and increased peak surcharge capture year-over-year, Carere does not expect this trend to continue into the latter half of the year. She mentions that while domestic volumes, especially in Ground, might improve, FedEx Freight's revenue may have bottomed out in Q2, and international volumes could soften slightly in Asia. The operator then introduces Ari Rosa from Citigroup, who asks Raj about the strategic separation and what needs to be done for a smooth transition.

In the paragraph, Raj Subramaniam addresses concerns about customer attrition due to the separation of FedEx and FedEx Freight. He explains that the separation aims to increase shareholder value and emphasizes the establishment of a separation management office led by Claude Russ to ensure smooth transition. To mitigate customer attrition risks, they've appointed a VP of LTL sales and plan to add 300 sales personnel in the coming year. FedEx aims to enhance customer experience, maintaining commercial, operational, and technological associations with FedEx Freight. Regarding Network 2.0, Subramaniam highlights significant progress with service policy prioritization, optimizing 200 stations, including 130 in Canada.

The paragraph discusses the integration of Canadian markets, with Montreal being the last major market expected to be completed by early 2025. The company is learning from each rollout and has achieved a 10% cost reduction in P&D where they've implemented version 2.0. By FY '25, they expect to have about 250 stations integrated. Regarding capital allocation, John Dietrich mentions that there will be no changes in strategy; the focus remains on optimizing business and returning significant free cash flow to stockholders, including a share repurchase program. Post-separation capital allocation will be reviewed and updated over the coming months.

The paragraph discusses FedEx Freight's commercial agreements and customer base. While most small customers have bundled contracts, the majority of FedEx Freight's volume comes from independent contracts. These contracts, which are typically renegotiated annually, will be honored. The company shifted its strategy 4-5 years ago to negotiate freight business separately in response to market fragmentation. FedEx Freight maintains strong customer relationships, and to support large accounts, they have a dedicated sales team of about 75 representatives. This team will be expanded to enhance their commercial focus and partnerships.

In the paragraph, the speaker discusses FedEx's small customer strategy, highlighting the benefits of the earned discount program that encourages shipping more FedEx Freight or LTL to boost parcel side benefits. The speaker refutes the notion that FedEx Freight revenue is diluted due to this program, emphasizing the commercial strategy's effectiveness. John Dietrich adds that existing service agreements at FedEx, particularly benefiting Euro Express, will enhance the strategy further post-separation, indicating no need for reinvention. In response to a question about EPS guidance, John notes that while pricing actions support earnings growth, revenue expectations are limited due to weak demand in the U.S. industrial economy.

The paragraph discusses the outlook for U.S. premium services, which are anticipated to remain subdued, thereby affecting operating income and margin. There is expected growth from deferred services, although with lower margins. The top end of the revenue range assumes modest global industrial production improvement, while the lower end expects a slight decline in revenue due to softer industrial production and pricing. The midpoint assumes flat revenue year-over-year. The focus will be on controllable factors, confidence in cost-saving initiatives, and the influence of market conditions. Raj Subramaniam notes the surprising decline in the ISM over the past 25 months and emphasizes the company's performance in this challenging environment, especially in FEC, which derives significant revenue from B2B and LTL sectors. Following this, Brian Ossenbeck from JPMorgan questions Brie on pricing and competition trends.

In the paragraph, Brie Carere discusses the competitive yet rational market conditions and the company's pricing strategy amidst economic pressures. Although some customers are trading down, the deferred side of the business is experiencing growth, particularly with the acquisition of new customers. The company faces challenges with base rates and weight pressures, especially in the freight sector. However, the team is focused on maintaining discipline in implementing surcharges that significantly impact costs, such as the peak surcharge. Large package handling remains a strong point for the company, with significant flow-through observed from ports in December.

In the paragraph, Raj Subramaniam responds to a question from Brandon Oglenski about what changes FedEx is implementing under their DRIVE initiative. He explains that DRIVE has become integral to how the company operates, focusing on disciplined execution through a market-leading governance approach and data-driven decision-making. This has improved FedEx's execution and will be beneficial moving forward. Additionally, the company has adopted a data-first digital mindset to solve problems and differentiate their service offerings, despite challenges such as economic pressures and losing a major customer.

The paragraph discusses a company's technological innovations and their impact on improving supply chain efficiency. The company has achieved significant savings through their DRIVE initiative, largely due to new technologies. They aim to make supply chains smarter, starting with their own, and plan to expand various operations, including Network 2.0 and Tricolor, and improve performance in Europe under the guidance of DRIVE. Additionally, during a Q&A, Bruce Chan inquires about the potential effects of USPS privatization on market competition. Raj Subramaniam expresses it's premature to comment, but emphasizes the importance of avoiding taxpayer subsidies in the package delivery business.

The paragraph discusses the group's ability to adapt to changes in demand and tariffs, particularly in the context of a cost structure that differs from the first Trump administration. Brie Carere notes that there may be a slight increase in demand due to movements in freight and parcel networks and that consumer demand and inventory levels will become clearer in January. The airline team is praised for its quick response and adaptability, supported by a strong global presence and customer relationships. Raj Subramaniam emphasizes the group's significant advantage in having a scalable network that can respond quickly to changes in global supply chains, making the organization agile in contrast to manufacturing sectors.

The paragraph discusses a company's strategy for competitive advantage through its end-to-end delivery services, including expertise in international customs clearance. This enhances their ability to improve customer supply chains. The operator then introduces Scott Group from Wolfe Research, who asks about the company's Q3 expectations concerning the post office and Cyber Week impacts, as well as the timeline for an LTL (Less Than Truckload) transaction. John Dietrich responds that the 18-month timeline for the transaction is standard for a deal of this size and mentions progress in reducing costs following the expiration of a U.S. Postal Service contract, including a reduction in domestic daytime flight hours.

The paragraph discusses the anticipated impact of a postal service contract on financial quarters Q3 and Q4, and its potential advantages in fiscal year 2026. During a Q&A session, Tom Wadewitz from UBS asks about the future approach for LTL (Less Than Truckload) services, focusing on volume and pricing strategies. Brie Carere responds, expressing satisfaction with the current revenue discipline and indicating plans to play offense by investing in new salespeople and technology. This approach aims to leverage the FedEx Freight network's capacity to enhance volume and optimize the industrial mix despite current macroeconomic challenges.

In the paragraph, Raj Subramaniam discusses the integration of 250 stations into Network 2.0 by fiscal year 2025, with significant progress expected in fiscal years 2026 and 2027, particularly in FY'26. He thanks the team for a strong peak season and extends holiday wishes to the call attendees. The session concludes with the operator ending the conference.

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