The paragraph is an introduction to the FedEx Third Quarter Fiscal 2025 Earnings Call. The operator announces the call and informs participants about the listen-only mode and the opportunity for questions later. Jeni Hollander, Vice President of Investor Relations, welcomes participants and mentions that earnings materials are available on the FedEx website. She highlights that the call may include forward-looking statements subject to risks and refers to non-GAAP financial measures that are reconciled on their website. It is noted that the call is joined by key executives, including Raj Subramaniam, the President and CEO, who then begins his remarks with gratitude towards their team members.

The paragraph discusses the company's performance, highlighting a 2% revenue increase and a 12% growth in adjusted operating income despite challenges such as weather events and the expiration of a USPS contract. Federal Express Corporation saw a 17% rise in adjusted operating income despite a weak industrial economy affecting B2B volumes. The company is positioned to benefit when the industrial economy recovers, and it continues to support customers with its global network and data tools to navigate market changes and regulatory compliance.

The paragraph discusses the company's efforts to improve efficiency and revenue growth by streamlining processes and optimizing their global network. About 75% of their revenue comes from U.S. domestic services, with a small portion from international trade. They aim to achieve $2.2 billion in savings for FY '25 and $4 billion based on FY '23 figures. Network enhancements, including the Network 2.0 initiative, aim to improve efficiency and aircraft utilization. The Tricolor operating model has improved air payloads and density, contributing to positive gains in international export freight revenue.

The paragraph discusses FedEx's strategic efforts and successes. They are transitioning away from a U.S. Postal Service contract to reduce costs and engaging in freight separation work. Despite a challenging demand environment and inflation, they are lowering their FY '25 EPS outlook. The company is advancing its transformation by integrating networks and leveraging technology for operational efficiency, particularly in Europe, where service improvements are driving profitable growth. They expect $600 million in savings from Europe by year's end. FedEx has acquired RouteSmart Technologies to enhance route optimization globally, supporting their Network 2.0 and overall network transformation. The company is proud of its progress and team performance.

In the third quarter, the company faced challenges like a volatile demand environment, postal service contract expiration, severe weather, and inflation. Despite these, they achieved a 60 basis point increase in adjusted operating margin and a 12% improvement in adjusted operating income. Looking forward, transformation initiatives like DRIVE, Network 2.0, and Tricolor are expected to provide long-term value. Brie Carere highlighted strong performance during peak season, with Cyber Monday seeing a 70% increase in package pickups compared to an average day. Post-peak trends aligned with market weaknesses, although consolidated revenue grew by 2%, largely due to higher volume at Federal Express, despite a weaker industrial economy impacting global priority and LTL volumes. The focus remained on profitable share growth, resulting in gains in U.S. domestic and international parcels, and global air-freight through the Tricolor strategy. Federal Express saw a 3% revenue increase due to higher deferred service volumes, while freight revenue declined by 5% due to lower volumes, fuel surcharges, and weight per shipment issues.

In the most recent quarter, the company achieved its highest year-over-year average daily volume growth since Q4 of fiscal year 2021, driven primarily by a 5% increase in Federal Express package volume. Key contributors to this growth included deferred services and Cyber Week timing benefits, although less-than-truckload (LTL) volumes faced pressure. U.S. domestic express services saw a slight volume increase with gains in deferred services somewhat offset by a drop in priority shipments. Ground volumes rose by 7% thanks to both B2B and B2C growth, while international export package volumes grew by 8%. Air freight experienced a 3% increase in average daily pounds for international priority freight, aided by the company's Tricolor strategy. Domestically, express freight volumes declined due to the end of a Postal Service contract. FedEx Freight faced a 5% decline in average daily shipments due to a soft industrial economy. Despite these challenges, the company focused on quality growth and maintained strong pricing strategies, with holiday surcharges benefiting results and a good capture rate on a 5.9% general rate increase effective since January. However, U.S. domestic package yield remained flat, with positive gains in certain services counteracted by declines in others, particularly in the international export sector, which saw a yield drop mainly driven by the international economy.

In the paragraph, FedEx Freight reports a 1% decline in revenue per shipment due to lower fuel surcharge revenue and weight per shipment, but a 2% increase in revenue per hundredweight, highlighting a focus on revenue quality. The company anticipates flat-to-slightly-down revenue for FY '25 and predicts stable fourth-quarter revenue for FedEx, driven by growth in deferred services and offset by fewer operating days, while expecting a moderated year-over-year revenue decline for Freight in Q4. Progress in commercial priorities was noted, including B2B growth, U.S. domestic e-commerce focus, global air freight segment growth, and accelerated European growth. Notably, FedEx is enhancing healthcare industry capabilities, leading to $400 million in new healthcare revenue over 90 days, largely from bundled customers using FedEx's services.

The paragraph discusses FedEx's financial and operational achievements. By FY '25, healthcare revenue is expected to reach $9 billion. The company has expanded its FedEx monitoring and intervention solutions to over 40 countries, offering customers greater visibility and control, particularly for high-value shipments. With most parcel growth coming from e-commerce, FedEx has increased its Sunday residential delivery coverage in the U.S. to nearly two-thirds of the population, leading to significant increases in package commitments from existing customers. This expansion is expected to be profitable by Q1 of FY '26. The company emphasizes its commitment to strategies targeting profitable growth. John Dietrich notes that despite challenges, FedEx demonstrated strong commercial execution in Q3, increasing revenue by $509 million and adjusted operating profit by $160 million, resulting in 17% adjusted EPS growth.

In the third quarter, FedEx achieved $600 million in cost savings through its DRIVE program, reducing structural expenses and boosting earnings despite facing several headwinds. These headwinds included a $180 million impact from the expiration of a Postal Service contract, $70 million from severe weather, and ongoing challenges from a soft U.S. industrial economy affecting B2B demand and FedEx Freight. Federal Express saw a $206 million increase in adjusted operating income, aided by DRIVE savings, base yield improvements, and increased export demand, particularly in Europe. However, FedEx Freight experienced an $80 million decline in operating profit due to lower fuel surcharges and weak industrial activity, although effective cost management partially mitigated these challenges. DRIVE savings were enhanced by optimizing air and international operations and improving route productivity, while also achieving $220 million in G&A savings by rationalizing vendor spending and enhancing back-office efficiency. Further savings are anticipated in Q4.

The company achieved significant DRIVE savings in the quarter, contributing to overall savings of $600 million. Despite challenges in the global industrial economy, inflation, and trade policy uncertainty, it has adjusted its FY '25 earnings per share forecast to $18-$18.60, down from the previous $19-$20 range. For Q4, the company aims to further execute its revenue quality strategy and enhance DRIVE savings to boost growth in adjusted operating income. It expects to reach a DRIVE run rate exceeding $2.2 billion annually by the end of Q4. Although facing headwinds from FedEx Freight and revenue yield pressures, particularly in international exports, it forecasts a $1.1 billion headwind overall, which is $400 million higher than previously expected, due to revised revenue and inflation assumptions. Additionally, the company anticipates a $400 million impact from the expiration of the U.S. and a $300 million impact from having two fewer operating days in Q1 and Q4.

The paragraph discusses the company's financial performance and future outlook. It highlights a $100 million improvement in the Postal Service contract and expected $2.2 billion in DRIVE savings for FY '25, despite flat to slightly declining revenue. Revenue in Q3 and Q4 is weaker than expected due to challenges in B2B and priority services, and inflationary pressures are increasing costs. Despite these issues, the company is reducing capital expenditures and returning capital to shareholders, with $2.5 billion in share repurchases and $3.8 billion returned to shareholders planned for FY '25. Capital expenditures are down to $4.9 billion for the year, aiding cash flow and shareholder returns. The company is also enhancing its fleet by purchasing new Boeing 777 freighter aircraft to replace older models and intends to maintain aircraft CapEx at approximately $1 billion post-FY '26 as these efficient planes reduce maintenance costs.

The paragraph discusses the company's ongoing strategy to manage its jet fleet by retiring older aircraft, specifically mentioning the retirement of 20 MD-11s over the past three years with plans to retire the rest by FY '32 instead of FY '28 to ensure network flexibility and reduce capital expenditure. It also outlines the progress on separating FedEx Freight, emphasizing the establishment of a separation management office and a successful $16 billion debt exchange offer to create flexible capital structures for the spinoff. Meanwhile, other operations, including a focus on safety, revenue quality, and efficiency, continue business as usual. The speaker expresses confidence in increasing shareholder returns and unlocking the company's value before opening the floor for questions.

The paragraph discusses a conference call where John Dietrich addresses questions about inflation's impact on financial guidance, stating it is a consistent challenge particularly regarding wages and peak volume periods. The call then shifts to Richa Harnain from Deutsche Bank, who questions FedEx's exposure to de minimis shipments in light of potential tax code changes. Brie Carere responds, assuring that FedEx is operationally prepared for these changes, thanks to adjustments made by their global clearance teams, and that they are working with customers to manage the situation.

The paragraph discusses the impact of the Asia market on the company's operations and its readiness to adapt to changes, such as de minimis or tariff alterations. The company is working closely with customers to prepare for these changes. For Q4, it expects revenue and volume trends to resemble Q3, with a note that Q4 has one fewer operating day compared to the previous year. Scott Group from Wolfe Research then asks John for insights on factors affecting fiscal '26, the progress on LTL relative to an 18-month timeline, and concerns about previous comments that may have unsettled people. John Dietrich acknowledges Scott's questions.

In the paragraph, the speaker outlines plans for the fiscal year 2026, focusing on profitable growth amid an unchanged macro-environment in the first half of the year. They expect to benefit from ongoing cost-saving initiatives, anticipating $400 million in benefits while dealing with inflationary pressures and challenges related to the Postal Service. The Network 2.0 initiative will offer savings, but these will increase significantly in FY 2027. The speaker also confirms that the timeline for the Less-Than-Truckload (LTL) separation is on track, with established project plans. They clarify that the focus will be on maintaining quality revenue in the freight division, emphasizing an expansion in sales staffing with expertise in LTL to ensure a rational pricing environment.

In the paragraph, Raj Subramaniam discusses the company's strategy to maximize revenue quality by fundamentally changing their structural costs and outperforming competitors in both top and bottom-line performance. He highlights several transformational network projects that increase flexibility and are supported by new technology to optimize operations. This transformation allows the company to profitably expand into new market segments, despite uncertainties in the industrial business environment. The aim is to grow in various markets, whether business or residential, U.S. or global, and across different shipment sizes and speeds. Bascome Majors from Susquehanna then asks about the progress and incentives of the newly established dedicated sales force, which was reportedly expanded to 300 members in a December update.

In the paragraph, Brie Carere discusses the company's focus on profitable growth through a dedicated sales team. The organization is expanding and implementing multiple growth strategies, with a particular emphasis on expertise in Less Than Truckload (LTL) and increasing market share among small and medium-sized customers. A Vice President is in place to oversee hiring individuals who can effectively represent the brand and execute revenue quality strategies. The hiring process is ongoing and expected to continue into the next fiscal year. The paragraph also includes a transition to a question from David Vernon about the Network 2.0 project, inquiring about productivity benefits and challenges associated with the rollout of integrated facilities. Raj Subramaniam expresses satisfaction with the rollout process, which is being done at a thoughtful and calculated pace.

The paragraph discusses the integration and progress of the Network 2.0 model, highlighting a 10% reduction in B&D costs and the expected increase in volume through the Network 2.0 facilities, reaching 12% by the end of fiscal 2025 and 40% by the end of fiscal 2026. It mentions the reduction in surface capacity and the continuous improvement efforts by the team. Following this, a Q&A session includes a question from Jordan Alliger of Goldman Sachs regarding LTL margins in light of current pressures in the industrial economy. Raj Subramaniam expresses confidence in the potential for margin expansion, emphasizing the company's strong position once the B2B sector rebounds, and highlights ongoing focus on improvement and customer service.

In this earnings call excerpt, Chris Wetherbee from Wells Fargo inquires about the factors needed to stabilize and potentially improve freight margins, considering the positive pricing environment despite decreased volume and fuel costs. Brie Carere responds, indicating that the company is cautiously optimistic, expecting strong Q4 margins and sequential revenue improvements, although revenues will still be down year-over-year. She expresses confidence in capitalizing on growth from a B2B demand perspective. John Dietrich adds that focusing on service and increasing volume will benefit operations, particularly in the less-than-truckload (LTL) sector. The conversation then shifts to Brandon Oglenski from Barclays, who acknowledges the volume insights provided by Brie.

Investors are concerned about a potential recession due to uncertainties around trade policies and tariffs. Brie Carere discusses how this environment is impacting customers, noting that there hasn't been a significant pull-forward in demand, though there was some volatility in the Asia-Pacific region. Most customers haven’t made major changes to their operations, as shifting inventory or manufacturing takes time. However, there's a consensus among customers about potential price increases due to inflation. The company remains flexible to customer needs, with dynamic pricing tools in place to adapt to changes.

In this passage, Raj Subramaniam discusses FedEx's extensive global network that connects 220 countries and territories, which positions the company advantageously as global supply chain patterns shift. He highlights that this existing infrastructure allows FedEx to handle increased inbound volume without needing significant changes. Additionally, Subramaniam emphasizes the importance of organized and structured data that FedEx has accumulated over the past five years, which now enables the company to offer valuable insights into global supply chains and customs clearance. This infrastructure and data provide competitive advantages and new value for FedEx customers. Following this, the Operator introduces a new question from Daniel Imbro of Stephens, who asks Brie about the stability of the pricing environment and the impact of peak surcharges as the company enters fiscal Q4.

The paragraph discusses the competitive yet rational pricing environment and highlights improvements throughout the fiscal year. Brie Carere addresses misconceptions about trade-downs, emphasizing the strong yield growth across various products, including domestic priority, international priority (IP), and ground segments. The demand for deferred volume is outpacing the growth for priority products, both domestically and internationally. The company's success in capturing this deferred growth and their ability to manage products effectively is evidenced by a 17% improvement in margin for the quarter. Carere stresses the importance of optimizing their network and cost structure for these deferred products through strategic transformations like Network 2.0 and other initiatives. John Dietrich indicates his intent to build on Carere's points.

The paragraph discusses the strategic improvements and growth within the company's network, highlighting the integration of new technologies and innovative transport combinations. This has enabled profitable expansion into deferred markets and improved cost structures to meet rising demand. As the company implements "Network 2.0" and expands in Europe with "Tricolor," these benefits will continue to enhance operations. In response to a question from Tom Wadewitz, the company elaborates on the success of its FedEx Ground Economy product, which has been a key driver of residential growth. This product is competitive in terms of transit performance and includes picture proof of delivery, which has been well-received by customers.

The paragraph discusses FedEx's performance and strategy, highlighting the success of FedEx Ground Economy, which has resulted in a favorable revenue ratio and increased domestic revenue. The company attributes this success to its strong value proposition and changes in the market. Additionally, FedEx is in the process of finding a new CEO for FedEx Freight, aiming for a visionary leader to guide the standalone company. The paragraph ends with a conversation between Raj Subramaniam and Jason Seidl, where Jason inquires about expected shipment declines and their potential improvement, questioning whether this is due to weather-related shifts or improvements in the less-than-truckload (LTL) sector.

The paragraph features a discussion on the business strategies of FedEx and its competitive position relative to USPS changes. John Dietrich expresses confidence in FedEx's LTL (less-than-truckload) business due to factors like an expanded sales force, improved service, and focused back-office operations. Brie Carere highlights FedEx's commitment to delivering reliable service and notes that competitive challenges faced by USPS are beneficial for FedEx's customer acquisition. Brian Ossenbeck from JPMorgan asks Brie about pricing strategies, noting increased surcharges and core prices, and inquires about the company's performance in Europe, suggesting some positive momentum in that region.

Brie Carere expresses optimism about the company's performance in Europe, noting seven consecutive quarters of increased parcel market share despite challenging economic conditions. The team has improved service and productivity, maintaining momentum and achieving profitable market share. There's still room for growth, but the fiscal year is going well. Intercontinental and intra-European operations are strong, and new customer acquisition is contributing to deferred parcel volume growth. The company maintains disciplined pricing and surcharges, ensuring yield improvement without discounting premium services.

The paragraph discusses the company's strategy regarding its air fleet and financial targets. It highlights their strong market position in handling large packages and emphasizes the importance of surcharges. As they approach fiscal year 2026, they anticipate improved pricing and reduced pressure on their base, though not fully in the first half due to existing contracts. In response to a question from Conor Cunningham, John Dietrich explains that despite incorporating new 777 aircraft, they have extended the use of MD-11s instead of retiring them. This decision aligns with their commitment to a $1 billion aircraft capital expenditure target for FY 2026 and subsequent years. Their investments focus on maximizing return on invested capital, which now also impacts executive compensation incentives.

The speaker discusses recent aircraft acquisitions, specifically the purchase of the last eight new Boeing 777 freighters, emphasizing their attractiveness and strategic value due to historical success with similar acquisitions. These new planes replace older models, aligning with plans to retire 31 aircraft, including nine MD-11s and 22 757s, by the end of FY24. Despite the planned retirements, the lifespan of some MD-11s is being extended to FY32, driven by international freight market growth projections and business considerations, allowing flexibility in retirement timelines based on demand. The operator then invites a question from Ravi Shanker of Morgan Stanley.

In this paragraph, Ravi Shanker inquires about the impact of the de minimis rule on revenues and the profitability of European operations. John Dietrich responds that most export volumes are B2B, with a minority under the de minimis exemption. He mentions progress in Europe, attributing $600 million in savings to the DRIVE initiative. Ken Hoexter then asks about potential issues with Network 2.0, such as volume loss or increased costs. Raj Subramaniam assures that the rollout is progressing well with a focus on efficiency and customer experience. John Dietrich adds that their capital expenditure budget is reduced to $300 million as they continue with Network 2.0 efforts.

The paragraph discusses how the company is staying within budget while executing Network 2.0 by tightening their CapEx investments. To lower costs, FedEx Ground is optimizing the use of surface transportation and reducing reliance on air freight by increasing trucking. They are moving certain products off-cycle to improve asset utilization and building denser loads by combining air freight with small e-commerce parcels in containers. The company is also controlling SG&A tightly while managing deferred volume. These strategies are reflected positively in their financial performance. After these updates, the operator invites Ariel Rosa from Citigroup to ask a question about the company's longer-term targets and business opportunities.

In the paragraph, Raj Subramaniam discusses the challenges and achievements of the DRIVE initiative amidst a weaker-than-expected macroeconomic environment. Despite lower revenue projections due to unexpected declines in industrial production, the company has successfully improved operating margins and returns on invested capital. Subramaniam emphasizes the impressive nature of these accomplishments, given the economic conditions. He highlights the structural cost reductions and network transformations, including projects like Tricolor and Network 2.0, which position the company for significant leverage and cost efficiency in international markets, particularly in international air freight, once the macroeconomic environment improves.

In the paragraph, Raj Subramaniam, the speaker, expresses confidence in the future growth and profitability of FedEx. He highlights the company's successful reduction of over $4 billion in structural costs by the end of FY25 compared to FY23, outperforming the industry in both revenue and profit during this period. He attributes this success to the DRIVE execution framework, enhanced data infrastructure, and initiatives like Network 2.0 and Tricolor, which are transforming FedEx's networks using the latest technology. Subramaniam emphasizes the company's improved cost structure, positioning FedEx to profitably expand in various markets and leverage growth when the industrial economy rebounds. He concludes by thanking the FedEx team for their performance and expressing optimism about the company's future. The operator then ends the conference.

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