聯邦快遞 (FDX) 2024 Q4 法說會逐字稿

Good day and welcome to the FedEx fiscal year 2024.

For the fourth quarter earnings call, (Operator Instructions) Please note that this event is being recorded.

I would now like to turn the conference over to Jeni Hollander, Vice President of Investor Relations.

Please go ahead.

Good afternoon and welcome to FedEx Corporation's fourth quarter earnings conference call.

The fourth quarter earnings release and stat book are on our website at investors dot FedEx.com. This call and the accompanying slides are being streamed from our website where the replay and slides will be available for about one year during our Q&A session.

Callers will be limited to one question to allow us to accommodate all those who would like to participate.

Certain statements in this conference call may be considered forward looking statements as defined in the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements.

For additional information on these factors, please refer to our press release and filings with the SEC.

Today's presentation also includes certain non-GAAP financial measures, please refer to the Investor Relations portion of our website at FedEx.com for a reconciliation of the non-GAAP financial measures discussed on this call to the most directly comparable GAAP measures.

Joining us on the call today are Raj Subramaniam, President and CEO; Brie Carere, Executive Vice President and Chief Customer Officer; and John Dietrich, Executive Vice President and CFO.

Now I will turn the call over to Raj.

Thank you, Jenny.

Our fourth quarter performance marks strong end to a year of successful execution.

We delivered year-over-year operating profit growth and margin expansion.

In every quarter of FY 24, we lowered our capital intensity, reaching our FY 25 target of less than 6.5% a year earlier, with lower CapEx and higher free cash flow, we returned nearly $4 billion to stockholders and we meaningfully improved our return on invested capital.

The entire industry faced a challenging demand environment in FY 20 for our team focused on what we could control.

And as a result, we delivered full year earnings towards the higher end of our original guidance range, up 19% year-over-year.

On an adjusted basis, we did this despite a decline in revenue compared to our initial growth expectation.

We also advanced our network transformation continuing to rollout network 2.0 and finalizing the transition to one ForEx, which went into effect June the first.

We did all of this while maintaining an intense dedication to serving our customers a relentless pursuit of innovation and an unwavering commitment to our people service profit culture.

Our transformation journey will continue in FY 25 as we build on the teams out spending progress.

Now turning to the quarter in more detail at the enterprise level, revenue growth inflected positive this quarter as expected, while we saw modest yield improvement and signs of volume stabilization across segments.

We have not yet seen a notable increase in demand, continued execution of drive alongside effective expense management enabled year-over-year improvements to adjusted operating income margins and earnings per share Let me pause here to acknowledge and provide context around the team's tremendous Q4 and full year results.

Crown delivered its highest adjusted operating income in company history for both the fourth quarter and the full year and freight Q4 operating income increased despite significant demand weakness.

In fact, because of our strong quarter performance, Breht ended fiscal year 2024 with full year operating margin equal to last year's all-time high.

Adjusting adjusted Express operating margin increased sequentially in the quarter but declined year-over-year.

As expected, we continued to take actions to unlock the full profit opportunities that exist in this business drive continues to change the way we work and benefits.

We've achieved our targets $1.8 billion in structural costs out in FY 24 with approximately $500 million from network and international, 550 million from G&A and 750 million from surface network in our air network structural network transformation and reduced flight hours drove the Q4 savings.

Within G&A.

We realize procurement savings by centralizing third party transportation, sorting equipment and outside service contracts.

Our surface network continued to maximize the use of rail.

As part of that effort, freight now handles nearly 90% of the drayage volume, up from about 25% just one year ago.

Looking ahead, we are firmly on track to achieve our target of 4 billion of savings in FY 25 compare to the FY 23 baseline.

Let me spend a moment on Europe, where we are executing on the 600 million RFY. 25 drive savings target we have shared previously.

I would like to thank Tal Redington for her more than 27 years of service and product.

Most recently as our Europe regional presidents couple of weeks ago and announced our impending retirements, we wish her all the very best Walter owns what was an exceptionally seasoned and experienced executive.

We'll become our Europe regional presidents on July first.

Water has been leading our Europe drive domain since its 2022 inception.

I'm confident that under Walter's leadership team will continue to advance drive initiatives to support improved performance.

John Bray, other fixed products executives and I were in Europe visiting the team and just last week, our team members there are working with rigor to execute on our efficiency plans.

Neuro performance improved on a year-over-year basis.

The fourth quarter route optimization improved thought processes and productivity gains led our Europe drive domain savings.

The actions are already underway for FY 25.

I left the continent and encouraged by our progress and with even more conviction in the opportunity it on June one, we reached an important milestone in our transformation, what we call One FedEx.

This is the consolidation of FedEx Express, FedEx Ground and FedEx Services into Federal Express operations.

There are many benefits.

This foundational step improves efficiency and reduces costs, allows our teams to move with speed and makes it easier for our team members to manage their products sorry, in Q4, we also continued to rollout network 2.0, including the launch in Canada, our largest market yet in the first half of FY 25, we will complete that Canada transition and optimized dozens of additional locations in the U.S., we expect to significantly pick up the pace into FY 20.

Importantly, even as we streamline our structure.

We are maintaining our strong service levels, and we continue to offer the widest portfolio of services with the most compelling value proposition for our customers.

Our integrated portfolio offering is a long-term driver of sustained profit improvement and a key enabler of our Tricolor network design.

We also continue to leverage data to create a more flexible, efficient and intelligent network in November of 2023, we began introducing a new tool to our contract service providers in the US.

That track and drive improvement across key operating metrics tied to demand safety, service and productivity to a common platform that we plan to scale globally, finding insights and enabling outcomes that are beneficial to Pfenex, our contracted service providers and our customers across the 65% of service providers are currently using the platform.

It's already driving service and safety improvements, which are translating into cost savings.

Real-time visibility tools like this are particularly important as we start to full packages across our network irrespective of some resolve.

Our FY 20 full results laid a strong foundation as we kick off the new fiscal year in fiscal 2025.

We will continue to execute our transformation strategy and expect to deliver adjusted EPS growth of 12% to 24%.

John will provide more detail on our outlook and the underlying assumptions shortly with the recent completion of the FY 25 planning process, we have turned our focus to the next phase of our long-term stockholder value creation plan as a part of this work, a management team and the Board of Directors along with outside advisers are conducting an assessment of the role of ForEx rates in our portfolio structure and potential steps to further unlock sustainable shareholder value.

We're committed to completing this review.

Our only and deliberately by the end of the calendar year will conduct this assessment while continuing to focus on customers, team members and the safety of our operations.

Before I close, I want to thank our FedEx team members for their continued commitment to our customers and their focused execution in FY 24.

I'm truly excited by the value-creation opportunities in front of us as we continue to win profitable share, execute on our structural cost initiatives and leverage the insights on the vast amount of data we've compiled from moving more than $2 trillion worth of goods every single year.

We are firmly on track to achieve our CAD4 billion FY. 25 drive cost savings target compared to the FI. 23 baseline.

We expect another 2 billion to follow from network to narrow our Tricolor strategy will improve the efficiency and asset utilization of the entire direct system.

We expect to continue lowering our capital intensity, improving ROIC, growing free cash flow and delivering significant returns to stockholders, we have a clear line of sight to achieving 10% adjusted operating margin on 100 billion of revenue.

I have never been more confident in our future as we create the world's most flexible, efficient and intelligent network.

With that, let me turn the call over to Brie.

Thank you, Raj, and good afternoon, everyone.

I want to congratulate our team on our outstanding Q4 and full year performance.

Our service and speed advantages continue to attract customers and high-value industries and segments.

With this focus on profitable growth, we have continued to gain market share, both in the United States and around the world.

We are very pleased to see revenue growth turned positive in the fourth quarter with volume stabilization and modest yield improvement.

Let's review fourth quarter top line performance by segment.

On a year-over-year basis, aesthetics ground revenue increased 2% on a 1% increase in yield and a 1% increase in volumes driven by ground commercial.

At direct freight revenue increased 2%, driven by higher yields.

Average daily shipments increased slightly, but ex Express revenue in the fourth quarter was flat with packaged yield up 2%, while positive yield growth was pressured by a tapering of international export demand surcharges and an increasing mix of deferred services.

International yields were also pressured by an increased capacity in the global air cargo market.

Turning now to monthly volume trends during the quarter, volumes continued to stabilize and US domestic package year-over-year volume declines continued to moderate international export package volume increased 8% in the quarter, driven by international economy, largely consistent with the monthly trends we saw last quarter.

Our continued focus on reliable service at Ground drove volume improvement in ground commercial and ex freight shipments inflected positive as the quarter progressed as we lapped last year's demand softness.

As we previously announced, our contract with the United States Postal Service will expire on September 29th.

Until then, we will continue to meet our service commitments.

We expect volumes to be near contract minimums, consistent with what we saw in the fourth quarter.

After the expiration of the contract, we will implement adjustments to our operations and network that will drive efficiencies and create more flexibility.

Similar to last quarter the pricing environment remains competitive but rational during the fourth quarter, we continue to grow yields as we focus on profitable growth and revenue.

Quality and express package yield increased 2% driven by higher US domestic package yield, partially offset by international export yield pressure.

Aesthetics Ground yield increased 1%, driven by home delivery and ground commercial.

Our value proposition is translating to increased ground commercial market share gains, which positively contributed to our yields.

And at FedEx Freight, revenue per shipment was up 1%, driven by a continued focus on revenue quality as we grew share in the most attractive parts of the market.

This was freight strongest yield performance since the third quarter of fiscal year 23.

In light of the overall pricing environment.

I am very pleased to report that we had a very strong US domestic capture rate on the 5.9% GRI in January.

We recently announced fuel surcharge table increases are across our services, which should also benefit yields in fiscal year 25.

We continue to enhance our portfolio and value proposition to drive profitable growth.

Our world-renowned brand the breadth of our networks and our strong reliability, along with our digital portfolio, our winning the hearts and minds of customers around the world.

A few commercial highlights.

I would like to share.

We are very proud of our health care portfolio last year as part of our commercial drive focus, we increased focus on this attractive segment and experienced great results.

We have over 1 billion of healthcare related revenue that comes from customers who utilize that extra round FedEx Ground platform provides insights to help our customers monitor and solve their supply chain challenges surround gives customers real-time visibility into their shipments by by combining information about the package with external data such as weather, to predict delivery, timeliness and to mitigate the risk of disruption.

Another critical element of our health care strategy is our ability to demonstrate our high reliability and our ability to meet customer quality agreements.

Quality agreement is essentially a customized standard operating procedure for critical health care shipments.

In fiscal 24, we signed new quality agreements for customers tied to over $500 million in revenue as we expand our health care portfolio will continue to focus on high-value areas like clinical trials.

Earlier this month, in the Netherlands, we opened our first European Life Sciences Center.

This state of the art cooling facility is the six of its kind in our global network offering an end to end supply chain solution for temperature sensitive medical storage and transport.

In addition to the tremendous work with our health care customers.

Our e-commerce portfolio is the most robust in the market.

We have the best speed average and capabilities and your proof of delivery with a great new feature to improved customer confidence.

We recently launched our picture proof of delivery APIC.s API.s enable our customers to expose that your proof of delivery within their own branded notifications and website.

This quarter, we signed several new pricing agreements with large retailers for our new at your proof of delivery API.

This is a great differentiator and RevPOR represents what will be the first of many wins for our new FTX. platform.

Looking ahead, in fiscal year 25, we expect the demand environment to moderately improve as we move through the year.

Currently, we expect U.S. domestic parcel and LTL volumes to continue to improve with the year-over-year increase growing as the year progresses.

International air cargo demand from Asia accelerated in early May and is stronger versus previous expectation.

We expect year-over-year growth to be driven by e-commerce and low inventory levels.

Shippers are facing tightened capacity, both in air and sea freight services spreads see disruption have further exacerbated shipping challenges from Asia to Europe.

These conditions should bring strength to the overall airfreight yields from Asia in closing I am very confident in our outstanding team, our strong value proposition and our new digital solutions.

These will continue to power our success as we build on our momentum in fiscal year 25.

And with that, I'll turn it over to John to discuss the financials in more detail.

Thanks, Brie.

For fiscal year 24, we delivered 6.2 billion of adjusted operating profit, which is nearly a $900 million or 16% year over year improvement.

Adjusted operating margin expansion of 110 basis points and adjusted EPS up 19%.

This is a very strong result in a year where revenue was down 3% or nearly 2.5 billion.

We also reduced our capital intensity and achieved our CapEx to revenue target of 6.5% or less a year ahead of schedule.

And with the continued strong cash flow and lower capital intensity, we returned nearly 4 billion to stockholders.

These results reinforce that our transformation efforts are taking hold and demonstrate our commitment creating value for our shareholders.

Taking a closer look at our Q4 consolidated performance on a year-over-year basis, adjusted operating income increased by over 100 million and adjusted operating margin expanded by 40 basis points at Ground.

The team delivered another strong quarter.

Adjusted operating income increased by 133 million and adjusted operating margin expanded by 130 basis points.

This was driven by continued progress on drive increased yield, lower self-insurance costs and commercial volume growth at Freight, operating income increased by $58 million and operating margin improved by 220 basis points, driven by higher yields.

Freight's continued focus on revenue, quality and cost management has enabled improved profitability despite the soft demand environment.

As directionally expected, adjusted operating income at Express fell by 92 million in the quarter and adjusted operating margin was down 90 basis points.

Express results were pressured by lower international yield, higher purchased transportation costs due to the launch of our Tricolor initiative and a headwind from annual incentive compensation, drive cost reductions and higher US domestic package yield partially offset these pressures.

With respect to Europe, earlier this month, we announced a planned reduction in the size of our European non-operational staffing to further support Express profit improvement.

We expect 125 to 175 million in annualized benefits beginning in FY 27 with tailwinds starting later in FY 26.

Decisions like these are never easy, but are a necessary step to improve profitability in the region.

In addition to our segment results.

Our fourth quarter results include a noncash impairment charge of 157 million relating to our decision to permanently retire 22 Boeing seven five seven aircraft from our US domestic network, along with seven related engines.

These actions, coupled with the previously announced retirement of nine MD elevens in the quarter, resulted in the permanent removal of 31 jet aircraft from our fleet in FY 24.

This reflects our strategy to continue to rightsize our air network capacity with demand and unlock additional operating efficiencies.

Now turning to our outlook for fiscal year 25.

Our adjusted earnings outlook range for the year is $20 to $22 per share.

Let me talk through our key assumptions and variables starting with revenue, we expect low to mid single digit growth, driven by improving trends in US domestic parcel and international export demand.

Primary factors that will ultimately determine our revenue growth are the rate of yield expansion, the pace of global industrial production and growth of domestic e-commerce.

We expect FY 25 yields to benefit from both improved base rates and increased fuel surcharges and consistent with what we have seen over the past year.

We're anticipating a pricing environment that is competitive but rational.

On the expense side, we remain committed to aggressively managing our cost structure, including the incremental $2.2 billion benefit tied to D.R. I'll walk you through the puts and takes in our FY 25 operating profit bridge in a moment at the business level, in fiscal year 25, we expect the newly combined Express ground and services segment now called Federal Express to be the larger driver of FY. 25 adjusted income and margin improvement.

And we expect FedEx Freight margins to be up modestly year over year.

We do both yield and volume growth.

I'd also like to provide some color on our quarterly cadence in light of the U.S. Postal Service contract expiration at the end of September, we anticipate headwinds from the expiration of that contract to begin in the second quarter starting in October, with this headwind lessening in the second half as we aggressively reduce our postal service related costs, including our US domestic air network.

Turning to other aspects of our outlook.

Our estimated effective tax rate for the full year is approximately 24.5% prior to mark-to-market retirement plan adjustments.

We're also forecasting 560 million of business optimization costs in FY 25 associated with our transformation.

Our operating income bridge shows the operating profit elements embedded in our full year outlook by way of illustration, we're using adjusted operating profit of 7.2 billion, equivalent to $21 of adjusted EPS.

The midpoint of our outlook range to get to 7.2 billion of adjusted operating profit.

We're now assuming revenue net of variable costs and continued inflationary pressures is up 100 million U.S. Postal Service contract termination results in a $500 million headwind.

International Export yield pressure of 400 million as demand surcharges diminish and mix continues shifting toward our deferred services and two fewer operating days in the year decreases profitability by 300 million.

And as a side note, we have not experienced this adverse calendar dynamics since fiscal year 21.

And lastly, performance based variable compensation increases by 100 million drive, however, will more than offset these pressures, delivering an incremental 2.2 billion in structural cost savings as a result of all of these factors and at the midpoint, we would expect fiscal year 2025 adjusted operating income to increase by approximately 15% year over year.

In FY 24, we remained focused on reducing our capital intensity, increasing ROIC and continuing to provide increased stockholder returns, all while maintaining a strong balance sheet.

Capital expenditures for the quarter were 1.2 billion, bringing year to date CapEx to 5.2 billion, which is a decline of nearly 1 billion compared to last year.

We delivered ROIC of 9.9%, which is an increase of 120 basis points from last year's 8.7%.

And we'll continue to focus on improving ROIC, and it is now a significant element of our long-term incentive program consistent with our goal of increasing stockholder returns.

We completed 500 million of accelerated share repurchases in the fourth quarter, bringing our total share repurchases for the fiscal year to 2.5 billion.

This is 500 million above our plan that we came into the year where for the full year, we also generated 4.1 billion in adjusted free cash flow, which is up about 500 million year over year.

Looking ahead to FY 25, we anticipate capital spend of 5.2 billion, which will again be down year over year as a percentage of revenue.

And we'll work by prioritizing our capital toward optimizing our network as part of network 2.0, further enhancing our fleet and automation to improve operating efficiency, and we remain committed to decreasing aircraft CapEx to approximately 1 billion in FY 26 due to improved earnings and CapEx discipline, we expect to further grow adjusted free cash flow.

This will enable us to deploy 2.5 billion in stock repurchases in FY 25, including a planned 1 billion of repurchases in Q1.

As previously announced, we are also enhancing our stockholder returns by increasing our dividend by 10%, and this is on top of the 10% increase we implemented in FY 24.

Lastly, we're planning for 800 million of voluntary pension contributions to our U.S. qualified plans.

And these plans continue to be well funded and we're at the 98.6% funding level at fiscal year end.

Finally, a quick update on our segment reporting changes now that we have successfully completed the consolidation of Express ground and services into Federal Express Corporation I'm pleased to announce that our reportable segments in FY. 25 will be Federal Express and FedEx Freight with no changes to corporate and other FedEx Freight will include FedEx customer critical, which was previously included in FedEx Express.

We're making this change to freight due to the business synergies between customer critical and freight.

Our new segment structure reflects our commitment to operating a fully integrated air and ground express network.

And let me be clear, notwithstanding the consolidation of Express and Ground, optimizing our express services and associated costs, including the cost of our global air network remains critical to our profit and return objectives.

This consolidated structure will support one FedEx and network 2.0 objectives, and we'll provide a more flexible efficient and intelligent network as one.

Fedex will continue to provide service level volume and yield detail, and we plan to share a revised statistical book in late August, which will include our recast results for FY 23 and FY 20.

Sorry.

Overall, I want to acknowledge and thank the entire team for their efforts in delivering these strong FY 24 results and improving profitability despite a very challenging demand environment.

I'm also really inspired by their commitment to achieving even stronger results in FY 25 and beyond as we continue to deliver on the purple promise.

With that, let's open it up for questions

And we will now begin the question and answer session to ask a question.

You may press star, then one on your touchtone phone.

If you're using a speakerphone, please pick up your handset before pressing the keys.

To withdraw your question, please press star then to please limit yourself to one question.

And at this time, we'll pause momentarily to assemble our roster.

And our first question today will come from Daniel Imbro with Stephens, Inc., please go ahead.

Hey, good afternoon, everybody.

Thanks for your question.

And maybe I will ask on the Express side.

So margins obviously came in at two six for the year.

I think obviously it's been volatile, but with the cost progress in Europe, the USPS contract shift?

And then just other moving factors in the core business, can you talk about how you expect those margins to trend both in the near term.

And then as we move through fiscal 25, Roger, give a little bit of color, I think on some of the USPS headwinds and timing.

But any more detail there and quantifying that would be helpful.

Thanks.

Thank you, Daniel, for that question.

Let me start and then John can fill in on some of the details here to firstly, we are sequentially improving our performance in our express services.

It remains a top priority for me and the entire team, and we are taking multiple actions here.

Firstly, we are aligning capacity with demand, as we already heard of a multimode 35, 31 aircraft, not just fleet in Q4, as I've mentioned to you in some detail last time, we spoke, I talked to you about Tricolor, and that's a fundamental restructuring of our network.

It does two things.

One, it improves or density improves asset utilization and expense margins.

And secondly, because of risk reduction of cost to serve, it puts us in a position to profitably take share in the premium freight segment.

Next, as I mentioned in my remarks, we will improve our European performance we have in our drive commitment is to improve $600 million or FY. 23 baseline, and that's a critical part of our extra services get better in FY 25.

And finally, now we are taking active efforts to make sure that our global SG&A is streamlined.

We are extremely confident that we can continue to unlock significant value in our expert services business.

Now let me turn it over to John to add more detail.

Yes, no, thanks, Raj.

And I think you covered it very well.

We are pleased to see the sequential improvement in our margins, but recognize we have more to go.

I will also add there is a significant sense of urgency as well drive is heavily focused on the Express business.

And as Raj mentioned, this is going to be a key part of our margin expansion as we go forward here and we'll look forward to updating you along the way.

Scott Group, Wolfe Research.

Hey, thanks, afternoon.

So on in the bridge, the $500 million postal headwind for the year.

How much of that is in Q2?

And what do you think that should mean for sort of like the quarterly earnings cadence?

And I guess ultimately, how much of the revenue decline with the Post Office do you think you can fully offset over the next few quarters?

And then if I if I may just a separate topic, Raj, just can you just talk about like the puts and takes of why you would or wouldn't go ahead with that yet with an LTL spin?

Thank you.

So So thanks, Scott.

And I'll start with regard to the 500 million.

We haven't laid out the spread of where it's going to impact us the most what we what we can say is we've got a pretty good hold on what those costs are.

We're going to be aggressively going after them beginning in Q2, and it's going to flow into Q three.

And those aggressive mitigation efforts should start to really take hold in Q2 three and beyond and look forward to keeping you posted on that.

And Roger, I'll turn it over to you on the other question.

Yes, Scott, at this point, all I'm going to say is that the assessment of FedEx Freight in the company's portfolio structure is well underway.

We'll do this analysis thoroughly deliberately and when we have something to communicate on this will, of course, do so.

Thank you, Scott.

I'm sorry.

I guess I didn't touch your revenue question on that part.

And as you can see from our outlook, we are looking to to year over year improve our revenue.

So that's part of our plan as well as we go forward.

Chris Wetherbee, Wells Fargo.

Hey, thanks.

On maybe Kevin, just to follow up again on the LTL piece Raj, just wanted to get a sense, does this include a spin or sale of the assets?

I want to make sure we understand all opportunities are public potential is on the table.

And then I guess, John, maybe you are thinking about that kind of revenue cadence.

I guess, how do you how do you think that sort of plays?

I guess that's the piece I'm looking at as the first step in the bridge on the revenue side, how that sort of plays out.

Obviously, you have the big dip in revenue relative to USTS. starting in 2Q.

Just wanted to get a sense of kind of how to think about that over the course of the year.

Okay.

Let me start and we and then give it to John and say at this point, I'm not going to say much more on this topic than what I've already said.

As I said, we are looking at the ForEx played in the company's portfolio structure, and we'll do the analysis and the we'll come back to you when we have something to say.

And so I'll touch on the cadence, we're not going to give quarterly guidance by segment.

But for your modeling purposes, we're anticipating normal seasonal trends to hold steady in FY.

25 Q1 I will note that Q2 will be impacted by a couple of events, including the impact of the U.S. Postal Service contract termination as well as Cyber Monday moves from Q3 of last year to Q2 of this year, and we'll look forward to keeping you.

I'm sorry, the other way around from Q3 to Q2, Q2 to Q3?

I'm sorry.

Conor Cunningham, Melius Research.

Thank you.

Just in the context of your revenue assumptions, just curious if you could frame up some of the moving parts, just maybe on when you expect volumes to inflect positive.

And then just any of it just doesn't seem like a macro-driven plan, but just any of your assumptions around the macro environment, what you need to see there to kind of see volumes.

Okay.

Thank you.

Sure.

Thanks, Conor.

And three, from a macro perspective, we are expecting sort of moderate improvement as we work our way through this fiscal year.

As we look at kind of the subsegments of our business from a B2B perspective, we are forecasting the overall B2B market to be around 2% growth.

E-commerce will be ahead of that.

As we've just seen, e-commerce reset is somewhat done when we adjust for that e-commerce as a percentage of retail in calendar year Q1, we actually were up 1% year over year.

So we do like the fundamentals from an e-commerce perspective that will help us here in the United States and around the world.

And then from an air cargo perspective, we are looking at the growth in the market around 4%.

So as we work through the year, we do expect there to be modest improvement.

We are forecasting that we will have to take some small market share in our profitable target segments, and we feel really good about the plan as we move forward through the year.

But I'll just add one more point here, just to make sure we will obviously monitor this demand very, very carefully, and we'll make adjustments as needed.

I would just point out on our tremendous execution in fiscal year 24, where we drove significant bottom line growth despite the lack of a lack of any revenue growth.

Ken Hoexter, Bank of America.

Great.

Thank you.

Good afternoon.

So, Rod, a lot to digest here and thanks for all the detail.

Maybe just thoughts on the integration of the networks.

Are your early take on how that's proceeding?

And I don't know if it's for you or John or Brie, but your 20 $22 range, maybe thoughts on what's the upside downside within that range from the midpoint?

Thanks.

Thank you, Lynn.

Let me start and then John can weigh in on this again, I appreciate the question.

We are very pleased personally with the execution and transition to one FedEx, which delivers multiple benefits.

Firstly, it's more efficient, though in reducing overlapping costs, but more importantly is much more effective.

And you know, we are as an organization and makes it also easier for our team members to manage their account careers much better on the network 2.0. We continue to make significant progress in this regard in the US in one of the biggest markets, obviously, the one is Canada and in first half of fiscal year 25, we'll complete the Canada transition and then we expect to significantly pick up the pace into FY.

26.

John?

Yes.

Thanks, Raj and he can book and on the guidance as always, we continue to take a very thoughtful and methodical approach on and there are a number of factors we've taken to into account.

And as Barry mentioned, we expect a modest improvement in the demand environment in FY 25 and supporting our revenue outlook of a low to mid single digit percentage increase, as we noted, and that will be driven by improving trends in US domestic parcel and international export.

And while headwinds remain and we lined those out in our in our bridge.

We continue to focus on aligning our costs across the enterprise with expected volume and our focus on executing on revenue quality strategy.

We're going to be focused on drive I would direct your attention to the right side of that slide, the $2.2 billion I'm focused on drive and controlling those things within our control, and that's going to be critical for us deliver on this guidance.

Brandon Oglenski, Barclays.

Hi, good afternoon.

And maybe if I can just follow-up from Ken's question there, Raj, on network 2.0 and the integration, I think investors are pretty excited about this, but also concerns.

But there could be network disruption.

I mean, if we've just looked across 20 or 30 years of transportation network integration, that always hasn't gone all that well, we can look no further than TI and TI.

So what are you guys doing from a systems perspective and maybe like a physical network and facility pickup and delivery line haul perspective that mitigates some of those risks?

And what are the lessons learned thus far?

Well, I'll start first and then maybe Brad can comment on it know, absolutely.

We are making sure that our customer experience actually gets better and we now have a very rigorous process through DRIVE rigor and discipline that we have established on multiple projects that like that associated with this is very critical.

So we will we will follow this very carefully and rigorously and make sure that our customer experience get it gets better as we go through this process.

The only thing that I would add, Brandon, is when we looked at network two data, though, is we've given ourselves time and from a pace perspective, we have built in the right cadence so that if we do need to pause, we can we haven't needed to.

I think that's really important.

The rigor and the planning and the technology and the tools that Scott Ray and John have have worked services.

Good and in fact, as I've mentioned previously, this also solves our single pickup feature of service, which has been just a huge opportunity for us as we move forward from small business acquisitions so I feel really good and services the strongest in the market aesthetics.

And as you see, I guess I have to say moving forward, and I feel really good about the domestic network right now.

Tom Wadewitz, UBS.

Yes, good morning.

So or good morning, good afternoon.

Days gone by quickly, um, let's see.

I wanted to see if you could give I know you talked a little bit about the some of the factors in drive wanted to see if you could give a little bit more maybe on Europe, I think some of the cost savings you announced, the headcount reductions come a couple of years out, not not in fiscal 25 or the ramp in 26 and more so in 27, can you give just a little more perspective on the changes in Europe and just how important the $600 million improvement in Europe is to the overall drive?

Thank you.

Yes.

Thanks, Tom.

It's John.

Yes, the $600 million is very important to drive and it's one of our top priorities.

As Raj mentioned, we were all just in Europe last week meeting with the team leadership not only there to support them, but also to stress the urgency of how important.

This is and we're looking at every aspect of our operation in Europe, there will be new leadership as well, and we're going to continue to focus not only on the commercial side, but some operational efficiencies, including the network.

There's also opportunity now that we're in network to zero full swing of implementation to leverage the expertise that John Smith and his team bring on the US side, which is where we're very strong work in coordination with our team in Europe, something that's been done in the past, but we're really taking it to the next level.

So I think all those things are key, and we're serious about the $600 million and look forward to updating you on our progress in the other category or the other major main categories again?

Yes, Tom, that the point that John just talked about is very important.

I think the biggest opportunity that we have in Europe and Central Europe theater, and that is down base.

And we have a significant amount of interaction now between all the management teams and between Boulder and Scott Ray, for example, never went below that.

And also we have now an established KPI dashboards that are very much provide real-time visibility on package flows and to improve service and reduce costs.

So a lot of work going on here.

Very excited about what we're looking, what we can make happen.

Jon Chappell, Evercore ISI.

Thank you.

Good afternoon.

I'm John, you pointed to the right side of the bridge again, on the 2.2 billion.

I think maybe some of the debate is that 2.2 billion gross or net.

It feels like you're saying it's both how much of that is truly in your control, kind of independent of everything else going on in the macro environment and even the yield environment.

And I guess the other part, another part of that would be if the non-hard borrowing demand even doesn't play out the way that you've kind of expected it to other other kind of variable cost levers to pull?

Or is this strictly just more of a structural drive cost initiative for fiscal 25?

Sure.

Thanks, Tom.

Yes, the 2.2 is structural in nature.

So from our perspective, that is all within our control and to the extent the macro environment doesn't cooperate, we're going to keep that at the 2.2 includes projects that are in motion now.

And as I've said in prior calls, some of our programs are going to over deliver somebody underdeliver, but the pipeline is constant.

So we're going to adapt aggressively not only to the plans that are in place, but also to the change in the demand environment as well.

And John look no further than what we did in FY 24.

Jordan Alliger, Goldman Sachs.

Yes, Hi, afternoon.

A question on the sort of the low to mid single digit revenue growth that you talked about for the year.

Is there a way to think about and the blend between the yield and volume.

Is that two and two something along those lines?

And then just sort of along those lines, I think you gave some color around B2B volumes of demand of up 2% or so.

I'm just sort of wondering, with retailers may be doing more of this just in time focus these days.

Does that sort of play into B2B and fast cycle logistics companies like feta?

Yes.

Yes.

Great question, Jordan.

So as we think about this year's revenue plan, you will see it be largely volume-driven and it will be driven from a deferred and an e-commerce perspective, as we just mentioned, we do think e-commerce is going to outpace the B2B growth.

To your point from a as speed perspective, we are actually seeing the speed conversation elevate in the market and especially with what we would consider sort of your Tier one or household brands from a competition perspective, we're absolutely increasing that conversation and actually there is increased demand from a speed perspective within it.

So I hope that gives you a little bit more clarity, but we do see volume moving.

Yes.

Brian Ossenbeck, JPMorgan.

Hey, good afternoon.

Thanks for taking the question.

So Bruce, maybe just to follow up on the demand environment itself, we expect from peak season and how the planning and integration visibility, I guess more importantly, is going with the major figures relative to prior years where it's been a little bit harder to it may be the right information and the right assets in place.

And then, John, can you just give us any sense, maybe I want to give quarterly guidance, but any sense in terms of how to drive 2.2 billion we'll roll out throughout each quarter this year?

Thanks, Brian.

So from a peak season perspective, we had a really phenomenal peak last year, and that's going to be hard to talk, but if there's a team that can do it, it's John.

And from a collaboration and insight, we are actually getting further integrated with our largest retailers.

So we have even better information than we have ever had.

And so from my perspective, I think from an asset and in alignment with capacity this peak, you know, I can't control the weather nor can John's message and you do a lot of things that you can't control the weather, but I do feel really good going into peak.

And in fact, we have taken all of our peak best practices from the United States and we are expanding them around the world.

We just had an incredible Hot Sale in Mexico domestic as an example.

So I so I feel pretty comfortable peak season Before John goes, I just want to make sure that you are in terms of the volume growth, what we're expecting is low single digit volume growth for the year.

Yes.

And with respect, Bryan, to your question on drive the 2.2 billion, we are committed to that.

And as I said, a number of plans already in place.

We talked about the $600 million for Europe for Europe and the majority of the savings will come from the surface network and our legacy Express operations as we're looking to optimize our processes, improve efficiencies there and and G&A IT and procurement will be key drivers for the savings.

I know you asked about the timing of that, but we look forward to keeping you updated as these plans solidify and as the year progresses.

Bascome Majors, Susquehanna.

For the investment community.

We it's very clear to see the potential benefits of separating the less than truckload businesses looking at multiples in domestic.

They are mainly there over the last three or four years.

What do we miss when looking at the other side of that?

What do you lose what are you thinking about as the offset that when you make that decision over the next six or so months?

Thank you, Bascome.

As I've said before, I'm not going to comment too much more on this.

We have always said historically about what value that access part of the network will do the full analysis.

And again, like I said, it's going to be very thorough and (unk), when we have something to talk about, we will definitely communicate it.

Ravi Shanker, Morgan Stanley.

Your line is the number one.

I just want to confirm that the headcount reductions in Europe were they part of drive?

I mean, given that you're going to see the benefit of that in FY 27.

Just wondering if that was incremental and also kind of when you think of the actions you're taking right now going to how much of that is commercial kind of operating kind of revenue-driven versus actual cost cutting in Europe?

Thank you.

So it's certainly in line with the drive philosophy and because some of the benefits are going to flow beyond the DR FY. 25 period, but we haven't included it in that number.

And it truly is cost takeout and these are nonoperational positions and we look forward to keeping you posted.

David Vernon, Bernstein.

Hey, guys, thanks for the time.

So Roger, to come back to the same topic again.

But when you were with us a few weeks ago here in New York, you were sounding like it was a little bit more of your moving in that direction anyway of more closely integrating some of the freight stuff with the Tricolor network strategy.

So a question for you is really kind of what's changed in the thinking in the last couple of weeks, like what's the impetus for the decision to do a review here?

And second, secondly, as you think about what that review will mean, are there any downstream implications for that on track or network strategy that we should be thinking about?

Well, David, thanks for the question.

You know, as we have heard from several investors and analysts in this regard.

And obviously, we take input from our shareholders very, very seriously.

And so this is the right time and are natural planning calendar as first strike or goes no changes.

We're moving on ahead.

Thank you.

Stephanie Moore, Jefferies.

Hi, good afternoon.

Thank you, intermediate.

A question for Brian here.

Of you noted, you're pleased by the pricing capture that you've been able to achieve.

I noted in light of the current pricing environment.

Can you maybe talk a little bit about what you're seeing in the current pricing environment from a competitive standpoint or overall rationality?

Thanks.

Sure.

Thanks, Stephanie.

So from a market perspective, it absolutely is competitive.

That's nothing particularly new in this, it's market and so it's competitive, but it's rational.

I think our team has been very disciplined.

We have absolutely been able to maintain the yield increases that we captured in CY 22 and FY 23 and then bolt-on there.

I think it's also really important to note that we're very focused not just on total yields, but getting yield in the right place where we need it.

So for example, I think our team is doing the very best in the market at getting peak surcharges.

You know, I should have said that when the peak question just came up, the team has done a really good job in getting the increase.

We need to deliver an amazing peak where we do have to expand capacity, same goes to rural coverage as well as large packages.

So yes, it's competitive, but I think the team is doing a really good job of navigating kind of market share profit and market share growth with getting the right yield for the right package and working really, really closely with the operations blending incredibly pleased.

Bruce Chan, Stifel.

Thanks and good afternoon, everyone.

Lots of good and interesting stuff happening here, but maybe just switching gears a little bit.

We've got some elections coming up.

And I'm just curious how big of an issue, you know, tariffs have been as part of your customer discussions to date?

And maybe more specifically, just given your commentary brief around China, e-commerce.

You've got a couple of big direct e-com customers.

Can you just maybe remind us of how big they are right now as a percentage of your book and what's maybe there volumes here if there is a change in trade policy?

Sir, I'll start with the last question and then I'll certainly turn it to the boss to talk about the overall tariff situation.

So from an e-commerce perspective, yes, e-commerce is the largest driver of InterContinental out of China, but actually around the world, both domestically and internationally.

And we are really proud of how diversified our revenue basis.

Yes, we have a great relationship with all of the major e-commerce players out of China, but the benefit of those customers is that they're really large.

And so we can partner with them to find the right solution.

What makes sense for us as well as what makes sense for them?

No, one carrier can serve their are entire needs.

And I think we found a very productive and profitable relationship.

And again, I do want to emphasize very diversified base and on the broader point here, the trade as a percentage of GDP is essentially flatlined since about 2016.

So we've been operating in this environment for some time now it's important to note that the trade patterns are fundamentally shifting.

And the good news for FedEx is our network.

We are here there and everywhere and that we get the intelligence from the market at the ground level there.

And you know, that is a we are a referendum on a global supply chain every single day.

And so because of that, we are able to react very quickly, much more much faster than manufacturing can move.

And also the way the supply chain pattern changes actually works in our favor in many ways because only the only car companies that have established networks that connect all these countries and actually do the states.

So for example, when our manufacturing moves to Mexico, we have a significant presence in Mexico and the United States, the impact on our competitive set, we are the only one who can say that with conviction.

So while we see the overall trade trends flatten out, there are opportunities as supply chain patterns change.

And again, we are established networks that we have in place and the digital tools have now have.

Our mix is very compelling, and this will conclude our question and answer session.

I would like to turn the conference back over to Raj Subramaniam for any closing remarks.

Thank you, operator.

Before we wrap, I want to congratulate Rob Carter once again on his upcoming retirement.

After more than 30 years of dedication and service to FedEx.

I also want to take this opportunity to welcome through ambitious Sami in this expanded role as Chief Digital and Information Officer effective next week.

In closing, I'm extremely proud of our FedEx team for a strong end to a year also of incredible performance margin expansion and operating profit growth for four consecutive quarters, despite revenue decline in three of those quarters is a tremendous achievement.

I'm excited about the opportunities ahead as we continue to focus on enhancing our profitability and stockholder returns while providing outstanding service for our customers.

Thank you very much.

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