FEDEX CORP Q3 FY2025 earnings call

• Team members delivered a strong peak amidst weather events and focused on safety and customer service.
• Q3 revenue up 2%, DRIVE savings reached $600 million, and adjusted operating income grew 12%.
• Federal Express had strong results despite headwinds like the Postal Service contract expiration and severe weather, while freight was pressured by industrial economy weakness.
• Focus on network transformation: Resumed Network 2.0 conversions, optimized stations, acquired RouteSmart Technologies for route optimization, and Europe saw improved service levels with $600 million DRIVE savings target by end of fiscal year.
• FedEx Ground and Home Delivery are faster than UPS Ground.

For Federal Express, revenue increased 3% year-over-year, with adjusted operating income growing $206 million. For freight, revenue declined 5% year-over-year, and operating profit decreased $80 million. In terms of revenue contribution, nearly 75% of FedEx's revenue comes from U.S. domestic services, approximately 10% from non-U.S. intra-country or intra-regional services, and the biggest single-country exposure represents about 2.5% of total revenue.

• Lowered FY ‘25 adjusted EPS outlook to $18 to $18.60 from the prior $19 to $20 range.
• FY ‘25 revenue expected to be flat-to-down slightly. Q4 Federal Express expected flat revenue driven by deferred service volume growth, partially offset by one fewer operating day. Freight expected revenue decline to moderate sequentially.
• DRIVE savings expected to reach $2.2 billion annualized by end of FY ‘25.
• Headwinds from FedEx Freight expected to continue in Q4 but moderate year-over-year.

• Uncertain demand environment impacting business.
• Industrial economy weakness pressuring B2B volumes and freight results.
• Postal Service contract expiration continuing to affect results.
• Inflationary pressures on the cost base reducing the full-year outlook.

Q: Jonathan Chappell asked about the guidance cut and inflation impact.

A: John Dietrich responded that inflation has been a constant factor and is one of the elements in the guidance change.

Q: Richa Harnain inquired about FedEx's exposure to de-minimis shipments and preparation for tax code changes.

A: Brie Carere stated FedEx is operationally ready with clearance teams adjusted and working with customers.

Q: Scott Group asked about fiscal '26 plans, LTL timeline, and offense comment.

A: John Dietrich mentioned focus on profitable growth, Network 2.0 ramp in FY ‘27, LTL on track for separation, and offense comment taken out of context.

Q: Bascome Majors asked about the build-out of the dedicated sales force.

A: Brie Carere said the team is focused on profitable growth, hiring for LTL expertise, and continuing hiring into next fiscal year.

Q: David Vernon asked about Network 2.0 productivity benefits and challenges.

A: Raj Subramaniam said Network 2.0 rollout is going well with solid service levels and learning applied for future rollouts.

Q: Jordan Alliger asked about freight margins and when they might stabilize.

A: Raj Subramaniam and Brie Carere expressed confidence in expanding margins once B2B business rebounds, focusing on service and sales team.

Q: Chris Wetherbee asked about freight margins and levers to improve them.

A: Brie Carere said Q4 expected strong margins with sequential improvement, and John Dietrich added focus on service and volume density.

Q: Brandon Oglenski asked about volumes in Q4 and USPS changes.

A: Brie Carere discussed Q4 volume outlook and USPS changes helping with acquisition, and John Dietrich talked about LTL confidence factors.

Q: Brian Ossenbeck asked about pricing and Europe momentum.

A: Brie Carere talked about pricing discipline and Europe's profitable share growth with service improvement.

Q: Conor Cunningham asked about fleet strategy changes.

A: John Dietrich explained aircraft acquisitions within CapEx framework and MD-11 extension for growth projections.

Q: Ravi Shanker asked about de minimis revenue percentage and Europe profitability.

A: John Dietrich said minority of revenue linked to de minimis and Europe is showing positive momentum.

Q: Ken Hoexter asked about Network 2.0 costs and economy cost structure.

A: Raj Subramaniam and John Dietrich talked about Network 2.0 within budget, and Brie Carere explained multiple levers for economy cost structure.

Q: Ariel Rosa asked about longer-term targets and operating leverage.

A: Raj Subramaniam said significant cost reduction, network transformation, and ability to profitably expand markets provide confidence for future.