聯邦快遞 (FDX) 2002 Q4 法說會逐字稿

Good morning, ladies and gentlemen.

Welcome to the FedEx corporation fourth-quarter

earnings release conference call. At this time,

all participants have been placed on a listen-only

mode and the floor will be open for questions and

comments following the presentation.

It is now my pleasure to turn the floor over to

your host, Mr. Jim Clifford. Sir, you may begin.

Thank you, Holly.

Good morning and welcome to the FedEx corporation

fourth-quarter earnings conference call, ladies

and gentlemen. I'm Jim Clifford, vice president,

investor relations, at FedEx corporation.

the earnings release and stat book on our web page

at FedEx.com. This call is being webcast from our

website and will be available for approximately

two weeks. Joining us today on the call are

membersth with the media. Market professionals

who have questions regarding financial and

operating performance should ask them during this

conference call rather than a follow-up call with

our investor relations department.

Also, we urge you to visit the investor relations

section of our website at FedEx.com to stay

abreast of information regarding FedEx. Our

website includes certain financial and operating

data, including our stat book, and will provide

notice of upcoming conference calls and other

events of interest to investors.

I want to mention again this morning that we are

planning our next analyst meeting for October the

1st in New York. You should have received a

notice to save the date via e-mail. Please let us

know if you need more information, and we will

certainly be giving you more detail in the future.

I want to remind all listeners that FedEx

corporation desires to take advantage of the safe

harbor provisions of the Private Securities

Litigation Reform Act. Certain statements made by

us during this call may be considered

forward-looking statements, such as statements

relating to management's views with respect to

future events and financial performance. Such

forward-looking statements are subject to risks,

uncertainties, and other factors which could cause

actual results to differ materially from

historical experience or from future results,

express or implied, by such forward-looking

statements.

Potential risks and uncertainties include, but are

not limited to, any impacts on the company's

business resulting from the events that occurred

on September the 11th, 2001, as well as general

economic and competitive conditions in the markets

we serve, matching capacity to volume levels, and

other factors which can be found in FedEx

corporation's and its subsidiaries' press releases

and filings with the SEC.

Joining us on the call today are Fred Smith,

chairman of the board, president, and chief

executive officer, Alan Graf, executive

vice president and chief financial officer, Mike

Glenn, executive vice president of market

development and corporate communications, Dave Ron

sick, president and CEO of FedEx express, Dan

Sullivan, president and CEO of FedEx ground, and

Doug Duncan, president and CEO of Fred ex-freight.

And now, our chairman, Fred Smith, will share his

views on the quarter, followed by Alan Graf.

After Alan, we will have time for Q and A. Fred?

Thank you very much, Jim, and thank you, ladies

and gentlemen for participating on this call.

In a few moments, I'm going to give you a brief

recap of the highlights of our results, but before

I do that, I'm going to ask Alan Graf to comment

specifically on some of the misinformation that

has been floating around this morning that's very

concerning to us, because it's masking really

outstanding results and prospects, so I'd like to

have Alan address this issue first and then I'll

give you my overall recap. Alan?

Thank you, Fred, and good morning, everyone.

We certainly have some confusion out there this

morning. Hopefully in the next couple minutes,

I'll be able to straighten that out. In fact, the

earnings guidance in today's press release is the

first guidance that has been provided by the

company to anyone on our first quarter and on our

year for fiscal year '03. As a result, we have

not lowered guidance nor have we issued a warning.

In fact, our range of 40 to 50 cents a share in

the first quarter, should we hit the up side of

that, would be an over 20% year-over-year

improvement.

Unfortunately, our range has been compared to a

First Call number of 57 cents. That number was

developed by eight analysts on their own with no

guidance from the company and would have

represented an over 40% year-over-year increase in

our earnings per share. Those same always,

however, in the second quarter have forecasted 79

cents a share, which would be a 2% decline year

over year, so I believe there's some confusion in

those models as to the cyclicality, seasonality,

and normal spreads of our business improvement.

We did say in the press release that we expect for

the year to increase revenue, increase

profitability, and return on invested capital, and

to continue to generate positive cash flow in the

new fiscal year. All of those are true, and the

18 analysts that follow us in First Call have a

consensus EPS estimate of the year for $2.77, and

I'm certainly comfortable with that range for the

year at this point.

So again, just to clear this up, we have not given

any guidance other than our press release today.

We are not giving a warning. We are not lowering

guidance. And in fact, we will shortly issue

another press release to confirm what I just said,

to eliminate the confusion in the market, which is

unfortunate, because we've had such an outstanding

fourth quarter, an outstanding year, and have such

a bright outlook for '03. And with that, I'd like

to turn it back to Fred to highlight some of the

great accomplishments FedEx has had.

Thank you very much, Alan, for that

clarification.

Regarding the earnings announcement of today, we

had a very solid quarterly performance and a very

good year, particularly given the uncertain

economic environment. We believe that our FedEx

strategy of operating independently and competing

collectively is yielding very solid results,

despite, as I mentioned a moment ago, a very

challenging economic landscape.

We believe that there is a modest economic

recovery underway, and there are a number of

underlying trends that would benefit our business.

Just today, a front-page article in - I think it

was the journal - talks about the new environment

of operating with lean inventories, and that

particularly plays to our strengths.

We believe that, as I mentioned a moment ago, that

our strategy that we announced now about

two-and-a-half years ago is working very well.

It - as Alan mentioned - generated significant

free cash flow in FY '02. $616 million and

allowed us to make, on top of that, a small

acquisition as well.

We achieved record earnings, and our fundamental

financial strength is at an all-time high.

We have a very strong focus across all of our

operating companies to keep our costs down.

Particularly noteworthy was the outstanding

efforts by the FedEx express management, which is,

of course, tied in to the high-tech and

high-value-added sectors more than our other

operating companies, which were particularly

affected by the broader economic retrenchment, and

we are focused on continuing to improve our

service levels, despite these efforts to maintain

excellent cost controls and to improve

productivity at the same time. And we've

demonstrated that we can do all of those things.

Capital expenditures for FY '02 were the lowest in

eight years, and again, with particular emphasis

on the outstanding job by the express management

team, they balanced their capital needs with

volumes which were soft during the year because of

the high-tech and high-value-added sectors.

There was a sharp increase in our cash flow, which

allowed us to initiate our first cash dividend.

It signals our board of directors very strong

confidence in the stability of future growth and

financial prospects of FedEx corporation.

All of our operating companies are operating their

business performance on what they do best in their

respective segments. FedEx express enjoyed

revenue growth for the first time in five

quarters, and it continued to be solidly

profitable during a very, very tough economy due

to productivity enhancements, excellent cost

controls, again as I mentioned, the good controls

on capital expenditures, more efficient use of our

air network assets, and our contract which

commenced with the U.S. Postal Service last

September.

FedEx ground had a very good quarter, indeed, and

an excellent year, as it expanded its network

capacity, improved the transit times and speed for

many shipments, improved customer service, and

deployed more robust information systems, and of

course our strategy that we announced

two-and-a-half years ago has had a major effect on

our ground unit in the now-familiar purple and

green logo of FedEx, allowing it to have a much

greater visibility in the eyes of the shipping

public.

We have a strong pipeline of incremental ground

growth opportunities, and the FedEx home delivery

growth trends also remain strong.

Our FedEx freight unit is now clearly the number

one regional LDL carrier in the country, and is

gaining market share. This freight unit provides

FedEx an unmatched competitive advantage in the

market, and we are in the process now of

rebranding our FedEx freight operating units and

adding new service offerings which we expect to

improve the growth prospects of FedEx freight even

further.

FedEx corporation can now offer customers a

greater variety of shipping options through a

common information system and keep them in the

FedEx family and our IT professionals continue to

demonstrate their technical prowess and great

leadership in that area of the business.

Our sales force is now better trained and more

effective in cross-selling both ground and express

services, and it's backed by a new set of advanced

automation and tracking tools developed by our IT

unit.

Ground and freight companies are operating at

record profits and service reliability levels.

Regarding the broader economic landscape, we

believe there are some signs of a modest economic

recovery. In FedEx express in Asia and Europe, we

see traffic there leading these trends

internationally, but manufacturing, high-tech and

wholesale sectors appear to be still lagging the

rest of the economy.

Now, express stands to gain the most from growth

in these three sectors as it's right-sized it's

operations and done such a good job of controlling

its costs, and we believe that our diversified

global network will enable us to take full

advantage of an improving economy.

We have positive underlying trends, we have strong

operating leverage at express, the expanded

business alliance with the postal service is an

excellent contract and is contributing to

express's revenue and margins. We see continued

migration of customers to FedEx.com for shipping

and customer service issues, which is helping us

to reduce costs, and improving customer

satisfaction.

As I mentioned at the on-set, we believe that

increasing efforts to achieve global supply chain

efficiencies and fast cycle distribution methods

will continue to benefit FedEx as people move

smaller shipments, whether packages or freight, in

a just in time and just as needed basis.

So to sum up, in fiscal '03, we'll continue to

improve how well we sell our full suite of

services to customers. We want to make that

experience seamless and easy. Our entire

management team remains steadfast in our

commitment to improving return on investment.

Cash flow and earnings per share. Let me say that

again.

Our entire management team remains steadfast in

improving our return on invested capital,

improving our cash flow, and our EPS.

I would like to personally thank, at the end of FY

'02, my partners and colleagues on the FedEx

management team, our strategic management

committee, which are the four executive vice

presidents and the presidents and CEOs of our

three major operating companies. They have worked

long and hard and produced truly outstanding

results in a tough year economically, and when the

company was in the process of also rolling out a

number of major initiatives such as FedEx home

delivery - excuse me - and I know I express the

appreciation of all of the members of our

strategic management committee to our over 200,000

FedEx teammates that work in our various operating

companies around the world for their strong

performance, their high morale, and their "can do"

attitude and most importantly for their commitment

to our customers.

So with that, let me turn the microphone back over

to Alan Graf to flesh out some of the remarks,

and then we'll go to questions.

Fred, that was very good and comprehensive, an

analysis. I would point you to my favorite page

in the press release, which is Page 10, and there

you see under our definition of free cash flow

$616 million. That's a very important number for

us. We're very proud of it. We want to emphasize

that we've retired a significant amount of debt.

We've bought back stock to prevent dilution from

our employee stock option programs, and we've

increased our cash balances and we intend to do it

again in '03 and beyond. And with that, Jim,

let's open it up for questions.

Holly?

Yes, sir.

If you would, please, would you give

instructions to the listeners on the use of the -

their phones and so forth and let's proceed with

the Q and A.

Thank you, sir. The floor is now

open for questions. If you do have a question or

a comment, please press the numbers 1, followed by

4, on your touch-tone phone. If at any point your

question has been answered, you may remove

yourself from queue by pressing the pound key. We

do ask that while you pose your question, that you

please pick up the handset to provide optimum

sound quality. Once again, that is 1, followed by

4, on your touch-tone phone at this time. Please

hold while we poll for questions.

Thank you. Our first question is coming from

Jordan Al in engineer of Goldman Sachs. Please

state your question or comment.

Yes, good morning, everyone. Just a question.

Obviously, once again, the ground business had a

very strong top line. What was very impressive,

though, was the ground operation on the margin

side, and I'm just curious if you could comment a

bit further on that and your thoughts a little bit

on sort of the secular trend line in that

business.

Thanks, Jordan. I'll let Dan Sullivan, whose

management team has done a terrific job comment on

that. Dan?

Okay. Alan, thank you. Beside excellent

growth and decent yield improvement during the

quarter, as you pointed out, we also had excellent

productivity across the board in all our key areas

of docks, load factor, and in our P and D

operations. We kept good control of all other

expenses beyond that, and even with good growth of

21%, we kept our head count low as well. So it

was an excellent quarter from that point of view,

in terms of good control of all expenses.

Thank you. Our next question is

coming from Gary YABON of Credit Suisse First

Boston. Please state your question or comment.

Thank you. If I could go back to the express

business, maybe this is for Alan or Dave.

Salary - salaries came in higher than I had

expected. Could you talk a little bit about where

those trends are and the head count in express

was, again, a bit higher than I had expected. Can

you talk about what occurred in the quarter and

what you see going forward for as far out in

fiscal '03 as you're willing to discuss?

Thank you, Gary. This is Alan. I'll start

out.

Because the company performed so well in the

fourth quarter, we did reinstate some bonus pools

for our management team that has worked extremely

hard and is well deserving and although they'll be

well below target, we felt it was the appropriate

thing to do and have done that.

As to head count, as you know, we have been

working that down very, very judiciously. Dave

can tell you that in more detail.

Certainly express is oversized at the moment for

the amount of volume it has, but our expectation

is - in '03 is obvious that we'll get back on

growth plan both in domestic and continue to

accelerate our IP growth as you saw happening in

the fourth quarter. Dave?

Yeah. Thanks, Alan. Thanks for the question,

Gary. We obviously have done a very good job

through the year, as Fred and Alan have both

pointed out, on FTEs. For the fourth quarter,

just for your information, and for others, we're

actually down about 4% on our U.S.-based variable

FTEs, right about in line with where the volume

has been, Gary. That's a little bit less than

where we've been. We've been about six or seven

percent, actually right about where the volume was

also in the second and third quarter. But just to

go back to Alan's point, in the fourth quarter, we

have our wage initiatives begin for all of FedEx

express, so that kicked in in February, so it's

one month in the third quarter, and then of course

the fourth. The VCP that Alan mentioned as well,

along with some healthcare and pension. So all

up, we ended up right around 4% down year over

year in the fourth quarter on U.S.-based FTEs.

VCP is a variable compensation program, for

those of you who aren't familiar with that

acronym. Thank you, Dave.

Yes, Gary just one thing. Of course the

numbers I referenced excludes the FTEs that have

been put on the U.S. post office and that's an

important piece. Of course that shows worsening

expenses, much higher revenue.

Thank you. Our next question is

coming from James Valentine of Morgan Stanley.

Please state your question or comment.

Great. Thanks. Guys, real good job here with

ground and freight. Definitely those things are

humming along here.

I had a question, first, Alan, about your opening

comments about our consensus and guidance.

Now, this is just back of the envelope, I'm on the

road now, but I think the last three years, say

'01, 2000, '99, your first quarter has been about

a quarter of your full-year earnings. You know,

if we took the mid-range of your guidance of the

fourth quarter annualized is about $1.80 a share

and consensus is 277 and I'm just trying to

understand other than the economic recovery, what

other seasonal types things this year would be in

the numbers that we need to be looking for.

Well, obviously your premise is flawed, Jim,

because we didn't have 25% last physical equal

year.

No. 17%, but I'm just saying prior to the

recession, that's what the run rate had been.

Well, you know, I can tell that you it's very

difficult to manage a company of this size in an

economic recovery environment where high-tech and

manufacturing are not yet at the levels where they

need to be to try to get back to hit those

numbers, but let me just try to give you the

answer here. Obviously we're going to have to

step up our pension and healthcare accruals. As

the discount rate for pension expenses lower and

the returns are - have obviously been very poor.

Healthcare, as you well know, is everybod's

double-digit inflation problem that we're trying

to manage. And then lastly, we believe that the

economic recovery will pick up steam in the second

half of the fiscal year. We don't need a lot to

hit that number that we've been talking about, but

we do need some. And then of course we still have

one more full quarter where last year we did not

have the dynamic fuel surcharge and this year we

do, and that could restrain first quarter a bit at

the moment, depending on where those go.

Obviously, the wildcard is what's going to happen

with diversion from the threat of an UPS strike,

and, you know, our Crystal ball, just like yours

on that one. So the best I can do, that pretty

much explains it. But it's tracking very much

like last year, which was also a fairly poor

economic environment the first quarter.

Thank you. Our next question is

coming from Donald Broughton of A. G. Edwards.

Please state your question or comment.

Yes. Congratulations, gentlemen. Strong

quarter all around.

Can you give us a little more color, though, on

yield for express? It looks like on a per-package

basis, it was down slightly, but on a per-pound

basis, it was up again. Can you give us more

insight than what's just there in the numbers?

Yeah, that's exactly correct. If you take a

look at the decomposition of the U.S. domestic

yield, the total was down 26 cents per piece.

Fuel surcharge was negative 37. Weight was

negative 57. Weight per pound was actually plus

74. And there are a few other things flowing

through there. So overall, we were down 26 cents.

for IP, while we're at it, actually the weights

moved up. The weights moved up, rate per pound

decreased a bit, which is fine, as we try to find

the right combination of yield and growth for our

IP product.

So overall, IP was up.

Thank you. Our next question is

coming from Jeff Kauffman with omega advisors.

Thank you very much. Alan, I got a longer-term

question here.

with all the cash you're generating, there's a lot

of things you can do with it. You mentioned the

dividend, you mentioned the debt paydown. Can you

give us a feeling for priorities, and at what

point some of these become satisfied? Have the

rating agencies told you where debt to cap and

some other figures they'd like to see for an up

grade, or what kind of debt level would you like

to see before you start funneling more of that

cash flow into other things such as acquisitions

or what have you? Just kind of give us a road map

for that.

Well, that's a - first of all, it's a great

road map to have in front of me for the first time

in a very long period of time.

My boss wants us to be AAA rated. It might take a

while to get there. We've just met with the

rating agencies, so I would not want to presuppose

what they're going to do. I'm positive they're

very happy, at least with the stability of our

rating. We do have a very large component of our

capital structure in off-balance-sheet aircraft

leases, and when you add that to the

on-balance-sheet debt, that's a fairly high

leverage number for a triple B or B AA sort of -

BBB+ , B AA 1 sort of a rating. So we're going to

work on that, continue to improve the balance

sheet. Obviously, we have a dividend. We've

started nominally. Obviously, we'll continue to

buy back stock for options programs. You know,

beyond that, it's obviously inappropriate to talk

about any sort of corporate development acc cysts,

but the point overall is, we are a much improved

company from a financial strength standpoint and

have a lot of flexibility.

Thank you. Our next question is

with Marty Vesco of U.S. Bankcorp Piper Jaffray.

Please state your question or comment.

Regarding your guidance for first quarter of 40

to 50 cents, can you give us a little bit of

detail as to what your assumptions are for

volumes, maybe, for the domestic package and the

international priority and also domestic ground?

the addendum, of course, goes through the end

of October and we're talking to them.

Because we believe our markets are going to

continue to grow and we have many investment

opportunities. In '03, we will increase that to

approximately a billion nine. We've done a

fabulous job at express of managing our aircraft

capital requirements down. In fact, we've

eliminated about $2 billion worth of spending, but

we still are going to take a lot of wide bodies in

fiscal '03 that we really won't need in '03, but

of course we will be able to use in '04 and

beyond. As you can see from the growth rates,

ground is growing almost exponentially, and we

will be increasing our investment in ground. We

will spend approximately 325 million at ground in

'03, and in fact, we expect ground's capacities to

double over the next five to six years. We're

going to increase our IT investment with some

productivity tools in our field at express. In

our areas, we'll spend about 300 million at

services, as a result. Freight will spend a

little over a hundred million dollars as we

continue to expand our networks. So all up, you

get about a billion nine versus about a billion

six fifteen in '03. Dan, you want to take the

home delivery question, please.

Sure. I think we had really a tremendous year

at home delivery. The volumes were clearly

excellent and the second half of the year they

were one-third of our total growth at the same

time through good productivity, the collocation

concept that we adopted during fiscal year '03

really reduced our costs, so we were able to, as

the press release pointed out this morning, take

our loss down about 38 to 40%, and I would expect

we'll do the same thing here in fiscal year '03.

And as we've told you in the past, we should meet

profitability in '04, but I've been tremendously

pleased with the way that unit has - has operated

and they're ahead of our expectations and we're

very optimistic about continued growth and good

controls of the - of the operation and I think a

very profitable unit ultimately.

Thank you. Our next question is

coming from Greg burns of J. P. Morgan. Please

state your question or comment.

Thanks. Hello. Alan, just I'm curious if you

could quantify what the swing in higher pension

and healthcare accruals and a change in the

discount rate - if you can quantify what the hit

to earnings will be versus, say, last year.

Well, we'll be disclosing in our 10-K much

greater detail about our pension accounting. It

will be up across the FedEx family of companies

about a hundred million dollars year over year.

Again, lower expected long-term returns and lower

discount rate, both impacting that.

Healthcare, we don't break that out specifically,

but it will also have an impact, but not to the

degree that the pension does.

Thank you. Our next question is

coming from Heather Lawrence of Fidelity

Investments. Please state your question or

comment.

My question has been answered. Thank you.

Thank you. Our next question is

coming from Steve Jacobs of U.S. Bankcorp Piper

Jaffray. Please state your question or comment.

Hi. Good morning. Just one more detail

regarding the comments on the ground service

enhancements and also I'd like to get an idea

about what your on-time performance is and what

your goals are. Thank you.

You want to take that one?

Allen, you want me to take that one?

Yeah, please, Dan.

Well, we've done several things to improve

service. One, we have - through some technology,

have been able to speed up our network and provide

a faster overall service to our customers. At the

same time, we've been able to improve our on-time

performance on those lanes, and that's running at

approximately 98% on time.

Over the last couple of years, we've expanded our

overnight coverage as well, which has really

helped to stimulate our growth. We've improved

pretty much all of our quality metrics, such as

loss, damage, scanned proficiency and those kinds

of things, so I think our overall value

proposition is much stronger than it - than it

was in the past, and I think our sales reps, along

with learning about the ground business, are much

more comfortable selling our - selling our

service.

Thank you. Our next question is

coming from Daniel McKinney of McDonald

Investments. Please state your question or

comment.

Good morning. Strong quarter.

I wonder if you could talk a little bit more about

the growth rates you're experiencing

geographically and if you could talk about the

other expenses that you have outside of the three

main areas for pension.

Well, I'll give you the express overview. You

have it in your earnings release, but the

international performance was very good this

quarter. We grew international priority at 3%.

That was led by Asia and Europe in mid-teen

performance. Of course the U.S. international

outbound is still lagging a little bit behind.

Deferred at express was also up 3%, and of course

you have the numbers on the express sector here

for domestic. It was negative 3.

However, direction Neal, that's very important

that if you look at the Q2 performance at express,

we were negative 11. Of course driven by 9/11.

And then negative 5 to negative 3. So we're

making marked improvement across the board.

As to your broader question, of course this is

a portfolio of services offered to a broad base of

customers on a global basis, and all of our costs

are very dynamic, and we will, of course, be

managing them over the year. We expect to have

continued cost reductions, where appropriate.

Some productivity improvements, better performance

at ground, and continued high growth at ground.

and one area I probably haven't mentioned is the

entire risk management coverage area. That will

be up substantially, along with pension and

healthcare. And depending on our retirement and

timing of maintenance at express, there could be

some small spikes in maintenance expense at

express, but again, I think all of those are

manageable and all of those are in our - in our

earlier comments that we're not uncomfortable with

277 for the year.

So, you know, it's going to be a balancing act and

a managing act and I think we've executed so well

over the past 18 months, we've got a high degree

of confidence in this.

Thank you. Our next question is

coming from Bob Boden of Bloomberg. Please state

your question or comment.

Good morning, everyone. I don't know if this

has been mentioned and I missed it but I was

wondering what the assumptions were regarding an

UPS strike for the first quarter and full-year

2003 numbers. Are you assuming that one won't

happen, one will happen, or are you sort of, you

know, picking somewhere in between?

I'm going to have Mike Glenn address that

question.

Well, first, let me say that we hope that UPS

customers are not inconvenienced again, but having

said that, one of the things that we learned

coming out of the last negotiations is we must do

a very, very good job in preparing to protect our

customers in the event of such an action, and as a

result of that, we've put in contingency plans to

help our customers manage through any potential

disruption, although, again, we hope that does not

occur.

Regarding the impact, most of the discussion with

customers to date has been on ground. Certainly

that's the bigger segment, and customers are more

concerned about protecting that segment.

We have seen some impact in the fourth quarter. I

would put that, based upon an analytical analysis,

in the range of 60 to 70,000 pieces for the

quarter, going more likely to 90 to a hundred

thousand pieces impact in May, and inching up from

there.

It's - it's really impossible to predict what's

going to happen. It all depends upon whether the

negotiations are - reach a successful conclusion

or not. If they do not, and we get closer to the

deadline, we would anticipate that volumes

strengthen. Again, primarily at ground with the

impact we've seen on express to date has not been

material, but that's clearly just dependent upon

the outcome of the labor negotiations.

Thank you. Our next question is

coming from James Winchester of Lazzard. Please

state your question or comment.

Yes. Good morning. Just to get a little bit

more definition on a few of the earlier questions,

first off, on fuel, you mentioned that you think

that if you look at the net of surcharges against

the change in fuel price, it would be back to sort

of a wash by November. It was 60 million the most

recent quarter. Can you give us a little bit of a

quantification of what you think the year to year

comp would be in the next quarter, what the

variance would be.

Secondly, if you could comment on the average

daily volume from USPS, just directionally or

ballparking, so we have some understanding of what

that volume component was.

and then I have a final follow-up question, but if

we could hit those first.

Well, as I've said, we're not going to discuss

individual customers and we're not going to

discuss volumes, revenues, and yields of the

postal service contract.

As to fuel, based on where fuel prices are today,

and what our outlook for the surcharge is, there

will be a negative impact in the first quarter,

but nothing like we had in the fourth quarter.

Much more manageable.

and what would be your last question?

Thank you. Our next question is

coming from came sheesh gin call of SG consulting

group. Please state your question or comment.

Hello, Alan. Great quarter. Very pleased with

the results. I have two questions, one relating

to FedEx ground, another one to FedEx freight.

the FedEx ground one is in connection with the

comment Dan made earlier that the profitability

has come from productivity gains. If you look at

your revenue, it introduce by 27 and volume 21. I

would imagine that some of that has come from

either the weight or the zones, if that at all has

contributed to it, and also through high margins

on the home deliveries than what may have been

anticipated.

and the second question has to do with FedEx

freight, that with the freight now going up to

900 miles next day, is that likely to shift some

business from FedEx express to FedEx freight, and

also from the hundred weight program of FedEx to

FedEx freight because the distances are farther

because of next day service.

Dan, you want to go first?

Well, first of all, as far as the yields are

concerned, our revenue per package grew mostly

because of our real rate increase, and I think a

good deal of that came from the continuing growth

that we're having with the small and mid-sized

shipper area. The weight and zone was - was

pretty flat year over year and didn't contribute a

good deal to yield.

the - certainly home delivery is having an impact

because of the residential surcharge which has

helped boost our extra services generally, which

has also had a fairly significant impact on yield.

So overall, obviously yield has had impact on the

bottom line, as the overall growth has, but

certainly productivity made a substantial

contribution year over year in the quarter.

Doug Duncan on freight.

the 900-mile service offering is in response to

what our customers have really asked for, and

our - in the east, where we operate 40-plus hubs,

there is an opportunity for customers that have

got some flexibility at the time they give us the

freight that we can get further reach with our

daytime line haul network, and that's what we're

exploring here.

I really don't seep it conflicting with any of our

other service offerings. It's a different type of

business. It's a different type of freight

offering. And I think it's complementary and not

competitive in any way.

Thank you. Our next question is

coming from Richard Thompson of commercial appeal.

Please state your question or comment.

My question has been answered. Thank you.

Thank you. Our next question is

coming from David Campbell of RBC Dain Rauscher.

Please state your question or comment.

Hi. Good morning, Alan, and gentlemen. I was

very excited during the course of the last 40

days. I think - or maybe 60 days ago, we had a

call - I got a call from some survey company

asking us - asking for my opinion as to how the

company could increase its - the financial

disclosure. And given the - what's going on in

the corporate world today, I thought that FedEx

was going to lead the way in increasing its

disclosure quarterly and so forth of financial

data.

Has there been any results from that survey?

You have - you have put some of my

colleagues - this is Jim Clifford, David. My

colleagues have got to see the results of the

summary of this survey in - on Friday at the SMC,

so they haven't all seen it.

I can say, David, that when you see our 10-K

this year, you will see a significantly enhanced

disclosure on critical accounting policies, those

sensitivity those policies have to judgment and

external events, and I think you'll be very

pleased in general.

Thank you. Our next question is

coming from James Valentine of Morgan Stanley.

Please state your question or comment.

This is Chad, actually. Jim had to step off.

But I just had one quick follow-up question. It

was with regards to the government payment of

120 million for September 11th, and in the last

10-Q, there was a comment about how the DOT was

basically looking at this payment and I was just

wondering if we could get an update on that.

We've received no additional payments from the

DOT.

Thank you. Our next question is

coming from David Campbell of RBC Dain Rauscher.

Please state your question or comment.

Sorry. I had one more question, and that is,

Alan, you were talking, I think in the answers to

some questions, it seemed like you were assuming

the first quarter '03 would be a poor first

quarter, something like a poor economic

environment or continuing the economic

environment, and yet you're talking about an

improving economy.

and, you know, I see growth in air freight in

general for the first time in, oh, I don't know a

long time, 12, 18 months. I see growth in air

freight and I was just curious as to why you would

be a little bit cautious about growth in your

business in the first quarter. Is it because you

think shippers are diverting packages to

deferred - deferred shipments or - and avoiding

next-day shipments, or what is it?

David, I'm not sure you asked me a question or

you were giving me a speech, but I'm not sure

where you get your air freight numbers and what

exactly that means and what you're referring to.

As we've said, and I'll state again, the high-tech

and manufacturing sectors are lagging the overall

economic recovery. Those are very high users of

express, and until those get back to more normal

times, we're not going to see the growth rates at

express and domestic that we've seen in the past.

However, as Dave Baron sick mentioned, we are

seeing an uptick in our international priority as

more customers source and sell on a global basis

and we're very excited about that.

My point being is that our first quarter numbers

do not have a rebound in manufacturing and

high-tech built into them. It's just as simple as

that.

Thank you.

Operator?

Yes, sir.

This is Jim again. I think we probably have

reached the end of the road here. We've gotten

the max out of the Q and A period, I think Fred and

Alan have some other things they've got to do with

the press and the media. So again, thanks

everybody for being on the call. Thank my

colleagues here for participating. And we'll see

you again next quarter.

Thank you. This does conclude

today's teleconference. May disconnect your lines

at this time and have a great day.