1 22 12 1 Forward-Looking Statements and Non-GAAP Financial Measures Certain statements in this press release may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act, such as statements regarding expected cost savings, the optimization of our network through Network 2.0, the planned tax-free full separation of the FedEx Freight business into a new publicly traded company (the "FedEx Freight Spin-Off"), future financial targets, business strategies, man ...

Core Insights - FedEx Freight is set to become a standalone public company by June next year, with plans to invest $600 million in IT infrastructure ahead of the spinoff [1] - FedEx reported consolidated adjusted earnings per share of $3.83 for its fiscal first quarter, exceeding consensus estimates by $0.22 and showing a year-over-year increase of $0.23 [2] - FedEx Freight's revenue for the quarter was $2.26 billion, reflecting a 3.1% year-over-year decline, with tonnage per day down 2.5% and revenue per hundredweight down 0.6% [3] Financial Performance - FedEx Freight's operating ratio was reported at 84%, which is 280 basis points worse year-over-year, impacted by $9 million in separation costs related to the spinoff [5] - The decline in revenue and a 100-basis point increase in salaries, wages, and benefits as a percentage of revenue were significant factors in the financial performance [6] - For the fiscal year ending May 31, FedEx Freight's revenue is expected to increase by a low-single-digit percentage year-over-year, with modest yield improvements anticipated in the latter half of the year [7] Market Conditions - The Purchasing Managers' Index (PMI) for August was 48.7, indicating negative territory for 32 of the past 34 months, with the new orders subindex moving into expansion territory at 51.4 [4] - The LTL market is described as "rational," but top-line trends are constrained by a weak industrial economy and share loss to the truckload market, where capacity is abundant and rates are low [3]

Financial Data and Key Metrics Changes - Revenue increased by 3% year over year, driven by strength in U.S. Domestic package services [7] - Adjusted operating income grew by 7% [7] - Adjusted earnings per share reached $3.83, up 6% year over year [36] Business Line Data and Key Metrics Changes - Federal Express Corporation (FEC) revenue increased by 4% year over year, with adjusted operating income growing by 17% and adjusted operating margin expanding by 70 basis points [8][38] - FedEx Freight faced continued pressure, with average daily shipments declining due to weakness in the industrial economy [24] - U.S. Domestic package yield increased by 3%, while international export package yield grew by 4% [25][26] Market Data and Key Metrics Changes - International priority and economy freight revenue grew by 14% year over year [14] - U.S. Domestic average daily volume (ADV) increased by 5% year over year [21] - The industrial economy remains weak, impacting FedEx Freight's performance [24] Company Strategy and Development Direction - The company is focused on reducing structural costs and enhancing service quality through the Tricolor strategy and Network 2.0 [6][14] - A spin-off of FedEx Freight is on track for June 2026, aiming to create a separate public company with a strong customer value proposition [6][49] - The company is leveraging data and technology to enhance operational efficiency and customer experience, with a focus on AI and predictive analytics [15][17] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's resilience despite global trade volatility and economic uncertainty [5] - The outlook for full-year adjusted earnings is projected to be between $17.2 and $19 per diluted share, reflecting a dynamic global operating environment [18][43] - Management remains optimistic about peak season growth, expecting modest increases in volume driven by larger B2C customers [28] Other Important Information - The company achieved $200 million in transformation-related savings during the quarter [7] - A 5.9% general rate increase is planned for January, with expectations of strong capture from pricing changes [27] - The company is enhancing its cybersecurity posture to protect strategic advantages [17] Q&A Session Summary Question: Clarification on EPS range - Management indicated that the EPS range is influenced by various factors including global trade evolution and domestic demand [52][54] Question: Understanding cost pressures - Management acknowledged significant headwinds from the global trade environment, impacting operating income [56][57] Question: Data strategy and revenue models - Management highlighted the importance of data and AI in creating new revenue models and enhancing operational efficiency [59][60] Question: Sequential earnings growth expectations - Management expects sequential earnings improvement in Q2 but did not provide specific guidance [67] Question: Clarification on global trade headwinds - Management explained that the majority of the headwind is due to reduced top-line revenue from the China lane [75][76] Question: Domestic volume outlook and competitive landscape - Management noted strong execution in the SMB segment and improvements in pricing, contributing to market share gains [85][88] Question: Customer reaction to de minimis rule expiration - Management reported that small exporters faced challenges due to the expiration, but the company is actively supporting them [103]

Financial Data and Key Metrics Changes - Revenue increased by 3% year over year, driven by strength in U.S. Domestic package services [7] - Adjusted operating income grew by 7% [7] - Adjusted earnings per share reached $3.83, up 6% year over year [39] - Adjusted operating margin expanded by 20 basis points [39] Business Line Data and Key Metrics Changes - Federal Express Corporation (FEC) revenue rose by 4% year over year, with adjusted operating income increasing by 17% [8][42] - FedEx Freight experienced continued pressure, with average daily shipments declining [26] - U.S. Domestic package yield increased by 3%, while international export package yield grew by 4% [27][28] Market Data and Key Metrics Changes - International export volumes declined, particularly on the China to U.S. lane [24] - The LTL market remains rational despite prolonged weakness in the industrial economy [9] - U.S. Domestic small business revenue grew by over 10% year over year [35] Company Strategy and Development Direction - The company is focused on reducing structural costs while advancing its Tricolor strategy and Network 2.0 [6] - A spin-off of FedEx Freight is on track for June 2026, aiming to create a separate public company [6][53] - The company is leveraging data and technology to enhance customer experience and operational efficiency [16][18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's resilience despite global trade volatility [5] - The outlook for full-year adjusted earnings is projected to be between $17.2 and $19 per diluted share [19][47] - Management remains focused on executing commercial priorities and dynamically matching capacity with demand [20] Other Important Information - The company achieved $200 million in transformation-related savings [7] - A new flight linking Dublin and Indianapolis is set to launch, supporting healthcare and high-value verticals [34] - The company plans to host its next Investor Day in February 2026 [21] Q&A Session Summary Question: Clarification on EPS range - Management indicated that the EPS range is influenced by various factors including global trade evolution and industrial economy health [56][58] Question: Incremental margin growth and headwinds - Management acknowledged the $1 billion headwind from the global trade environment, impacting operating income [60][62] Question: Data strategy and revenue models - The company emphasized the value of its data and AI capabilities, which are expected to create new revenue models [64][66] Question: Sequential earnings growth expectations - Management did not provide specific Q2 guidance but expressed cautious optimism for peak season demand [70][72] Question: Customer reaction to de minimis rule expiry - Management noted that the expiry has been challenging for small exporters, but they are actively supporting customers [107][108] Question: Peak season strength and market conditions - Management expects volume growth during peak season driven by new acquisitions and strong B2C demand [111][115]