FedEx Corp at Bank of America Corp Industrials, Transportation & Airlines Key Leaders Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Ken Hoexter - Bank of America - Analyst : So I want to get to today's news really quick, but what's the backdrop heading into this economically? What was your look at B2B, B2C growth just to set the stage on kind of the backdrop that we're dealing with?

Question: Ken Hoexter - Bank of America - Analyst : So let's jump into the weekend news, which is -- let's talk big picture for a minute on the tariffs change with China. I know you were just talking in detail kind of we'll get into the de minimis leaving that off just talking about that. What changes quickly for you and in the volumes? And what does this mean?

Question: Ken Hoexter - Bank of America - Analyst : Do we actually -- because of the shipping stall that occurred that we're now seeing hit our stores now, do you have a catch-up via air that needs

Question: Ken Hoexter - Bank of America - Analyst : Okay. Not to plan, but if I could just add a little bit to this, just given my past experience on the aviation side, generally speaking, when there is some motion disruption that usually bodes well for air freight when that demand returns for the speed and the reliability to get kind of the flywheel going again. But I agree with Brie. It's a little too soon to tell what's actually happening right now. Because you need lead time on the orders to get going? Or there wasn't stuff at the dock ready to go in terms of that process?

Question: Ken Hoexter - Bank of America - Analyst : Where do you think we settle in with tariffs?

Question: Ken Hoexter - Bank of America - Analyst : Going back to 30%, though, do you think that keeps the flow moving if that's not prohibitive to the costs?

Question: Ken Hoexter - Bank of America - Analyst : So we're talking about de minimis-type products going here?

Question: Ken Hoexter - Bank of America - Analyst : Okay. Because there were 30 -- as we talked about before, there were 37 pages of exemption (inaudible).

Question: Ken Hoexter - Bank of America - Analyst : Where you're going to -- REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 12, 2025 / 10:00PM, FDX.N - FedEx Corp at Bank of America Corp Industrials, Transportation & Airlines Key Leaders Conference

Question: Ken Hoexter - Bank of America - Analyst : So Brie level set just before we keep going over, John. What percent is -- just so the room -- what percent of your business is international versus domestic?

Question: Ken Hoexter - Bank of America - Analyst : Okay. And then -- so now let's jump into -- you brought up de minimis, right? So let's jump right into the under de minimis exemption. What does it mean? Can you tell us what percent of the business is Chinese e-commerce, [team, machine] and others? Whatever you want to box it into. What does the end mean in terms of volume aircraft? I don't know if you want to bring in to -- Tricolor into the discussion and the financial implications as far as you willing to educate us.

Question: Ken Hoexter - Bank of America - Analyst : Has it completely ceased?

Question: Ken Hoexter - Bank of America - Analyst : Okay.

Question: Ken Hoexter - Bank of America - Analyst : Yeah. So, Brie, just to clarify, the de minimis is dead in terms of the terms and the 50% is terms of off rate? Or were you throwing in that 50% --? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 12, 2025 / 10:00PM, FDX.N - FedEx Corp at Bank of America Corp Industrials, Transportation & Airlines Key Leaders Conference

Question: Ken Hoexter - Bank of America - Analyst : So you can now move down to 50% of the de minimis product?

Question: Ken Hoexter - Bank of America - Analyst : So they're bringing the capability of de minimis shipments back?

Question: Ken Hoexter - Bank of America - Analyst : Yes. So they don't have to ship it -- whatever the de minimis charge was 168%, you can now ship what you want at about a 50% rate?

Question: Ken Hoexter - Bank of America - Analyst : Formal clearance getting in under the (inaudible)

Question: Ken Hoexter - Bank of America - Analyst : So they'll be able to move it. It's just now more complex. They have to file. But it's not a death now to them. It's a charge, but a significant charge.

Question: Ken Hoexter - Bank of America - Analyst : And there's a bit of an irony into that, too. There's a bit of an irony given that the integrators like FedEx are better suited in terms of kind of safety protocols and the investment in protecting the shipments from the kind of things that are looked to be protected against. And there's a hiring in the outcome of those unintended consequences. So you're saying Canada post could fly it to Canada, and then it could come cross-border without (inaudible)

Question: Ken Hoexter - Bank of America - Analyst : Okay, understood.

Question: Ken Hoexter - Bank of America - Analyst : Okay. All right. Let me jump over to -- and we got a lot to cover. So I hope I'm going to touch on some of these things. But Amazon tonight, right? So just before we all walked in the room, I'm sure everybody saw a couple of things stuck out, the cost benefits that you've got lower price points than what UPS provides indicating Amazon saves money on the deal. I don't know if you want to -- maybe you want to just start out with what the agreement is, and then I can (inaudible) on some of the questions. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 12, 2025 / 10:00PM, FDX.N - FedEx Corp at Bank of America Corp Industrials, Transportation & Airlines Key Leaders Conference

Question: Ken Hoexter - Bank of America - Analyst : So this is big and bulky? Is it in freight or is it still --?

Question: Ken Hoexter - Bank of America - Analyst : And I think if I could, one of the themes to take away from everything breaches said, which I agree with everything you said, is mutually beneficial. Are you talking to the size of the contract? We all know that UPS is losing $5 billion.

Question: Ken Hoexter - Bank of America - Analyst : Okay. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 12, 2025 / 10:00PM, FDX.N - FedEx Corp at Bank of America Corp Industrials, Transportation & Airlines Key Leaders Conference

Question: Ken Hoexter - Bank of America - Analyst : Size of the post office.

Question: Ken Hoexter - Bank of America - Analyst : You tell me.

Question: Ken Hoexter - Bank of America - Analyst : And your largest customer is?

Question: Ken Hoexter - Bank of America - Analyst : Do you break out your largest customer in terms of revenue?

Question: Ken Hoexter - Bank of America - Analyst : No. Okay. And this won't be the largest customer?

Question: Ken Hoexter - Bank of America - Analyst : Is this big and bulky? Is this rural? Is it everything? Is it -- people ask me, UPS was known for getting rid unprofitable lanes. It was rural. Is this everywhere? Is this --?

Question: Ken Hoexter - Bank of America - Analyst : So just to clarify the largest customer comment, I've just got -- trying to think of different ways. I'm going to get asked this over the next few days.

Question: Ken Hoexter - Bank of America - Analyst : If they're giving up $5 billion of revenue, you're saying it's not that all coming to (inaudible)

Question: Ken Hoexter - Bank of America - Analyst : What makes sense.

Question: Ken Hoexter - Bank of America - Analyst : And just so I understand that sense. In terms of you're in the midst of blending ground in Express, which we'll talk about, does that process matter in terms of this? Or just your ground capabilities now as they stand --?

Question: Ken Hoexter - Bank of America - Analyst : Okay. All right. Let's pass it on the next, DRIVE. I think -- okay, yeah, I'm kidding. So Brie, you targeted $2.2 billion this year, total of $4 billion over the last couple of years. How does it shape up in terms of actually seeing it to the bottom line? John, we talked about this a lot last year, right? And everybody just wanted to know the net number, not the gross number, right? How do we, as investors, see that move to the bottom line? How do we think about it? I think you've got, what, only $625 million, $650 million left in the last quarter. Then we're now on to Network 2.0, right? So we're coming up to the end of the program, but there's always been this debate about the gross number net number. Any way you can kind of talk to us about that?

Question: Ken Hoexter - Bank of America - Analyst : All right. So then next up is Network 2.0, right, which jumps in next month -- end of this month. We're there. That was amazing. So you target an additional $2 billion of savings. But let's talk about kind of where we are in that process, right? I think you had five markets that were going to be integrated last quarter, 45 coming up this quarter, right? So is that by end of May? And then you would finish Canada, I think, by the end of April, right? Is that done now? So talk to us about the progress and maybe potential plans to accelerate. Have you been successful at it? And so what have you learned? And does that mean we go faster? Or is it on target? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 12, 2025 / 10:00PM, FDX.N - FedEx Corp at Bank of America Corp Industrials, Transportation & Airlines Key Leaders Conference

Question: Ken Hoexter - Bank of America - Analyst : Is there any example you can just walk us through, like in terms of how do you determine the ground contract or the express driver? How does that work in a city where you've got -- as far as I understood it when I was coming into the business, you talked a lot about sorting at the airports. The ground was done near the downtown business there tricks for speed. Now you've got two different sort centers. So how does that match? And then if I understood it, there was a different software at express and ground. How did that blend together and be able to keep that service level while you were doing it?

Question: Ken Hoexter - Bank of America - Analyst : [JULS START] And that will be done by the end of Network 2.0? Or is that a...

Question: Ken Hoexter - Bank of America - Analyst : All right. So your competitor talks a lot about focusing on SMBs try to get up to 30% of the business. You started off with how much is B2B already. How do you direct your sales in that environment where somebody is going to chase that SMB customer? What is -- how is your focus on the customer? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 12, 2025 / 10:00PM, FDX.N - FedEx Corp at Bank of America Corp Industrials, Transportation & Airlines Key Leaders Conference

Question: Ken Hoexter - Bank of America - Analyst : And they're the best tennis rackets out there.

Question: Ken Hoexter - Bank of America - Analyst : Is there a sales force number that you use? I know you're talking about building up on Freight, which we'll talk about in a minute, is there a number of salespeople?

Question: Ken Hoexter - Bank of America - Analyst : So jumping out before we leave DRIVE all together, I get a lot of questions still on FedEx Europe, and I'm not sure how many people in the room would still remember TNT or as a stand-alone company. But you talked about being on track for $600 million of savings. How much further does Europe have to go to be breakeven in terms of beyond the $600 million, does it get to breakeven? What's left to achieve after that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 12, 2025 / 10:00PM, FDX.N - FedEx Corp at Bank of America Corp Industrials, Transportation & Airlines Key Leaders Conference

Question: Ken Hoexter - Bank of America - Analyst : So (inaudible) a little bit. So I remember post the acquisition, you had the cyber attack, it seemed like you didn't know who the customers were. So they would still go out there. And then obviously, the customer was saying, I'm not going to trust you with high-value stuff, but we have a good relationship. So more LTL type freight, right, became more freight. Has that transition, like maybe can you talk about how the mix has changed over time in terms of how you get to that profitability? Is that now a small package network of good blend network? Does it still have a way to go. Just where are we in that evolution back to what it was pre the cyber attack?

Question: Ken Hoexter - Bank of America - Analyst : So if I caught it right, I'm going to completely keep jumping around. You added surcharges maybe it was back in April, is that gearing up for this shortage of rate in anticipation? Was that preparation for peak season? Can you run through what was the goal of the surcharges?

Question: Ken Hoexter - Bank of America - Analyst : Yes.

Question: Ken Hoexter - Bank of America - Analyst : Export -- Imports into the U.S. or export?

Question: Ken Hoexter - Bank of America - Analyst : Okay. Update on the Freight Spin Separation. Target for May, anything about current valuations that have really changed in the freight market that gets you to reconsider and keep the asset? Is it still on --?

Question: Ken Hoexter - Bank of America - Analyst : This question was -- that's part of this question was written before today, right?

Question: Ken Hoexter - Bank of America - Analyst : I'm sorry, so leadership or freight will be announced --

Question: Ken Hoexter - Bank of America - Analyst : With results or before? Near term. Got it.

Question: Ken Hoexter - Bank of America - Analyst : Okay. Okay.

Question: Ken Hoexter - Bank of America - Analyst : From the industry, from FedEx.

Question: Ken Hoexter - Bank of America - Analyst : From the industry, from FedEx?

Question: Ken Hoexter - Bank of America - Analyst : Okay. Last quarter, you lowered your EPS target about 6% to the midpoint $18 to $18.60 indicating kind of a fiscal fourth quarter of $5.83 to $6.43, a fairly wide range. I presume you're going to tell me, just given the volatility of what we're seeing in the market. But you noticed weakness and uncertainty in the US economy and that was only March when we last talked before Liberation Day or tariffs, whatever you want to call it. What are your latest thoughts in terms of bottom end of the range, top end of the range, what gets us there not where we are, but unless you want to tell us where we are, but --

Question: Ken Hoexter - Bank of America - Analyst : Given what we saw in terms of the almost the complete suspension of some of that freight that need to figure out how it flows. Was there any commentary in terms of should we expect negative volumes at Domestic Express? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 12, 2025 / 10:00PM, FDX.N - FedEx Corp at Bank of America Corp Industrials, Transportation & Airlines Key Leaders Conference

Question: Ken Hoexter - Bank of America - Analyst : Domestic packages.

Question: Ken Hoexter - Bank of America - Analyst : So international is worse, domestic was holding strong.

Question: Ken Hoexter - Bank of America - Analyst : Okay. Anything on the LTL side driving that?

Question: Ken Hoexter - Bank of America - Analyst : And that's more IP.

Question: Ken Hoexter - Bank of America - Analyst : but not a reflection of stuff that needs to come in just domestic movement of the freight.

Question: Ken Hoexter - Bank of America - Analyst : But you wouldn't have had the stuff not hitting the shortest yet because that's just happening now, right? So that would have been not --

Question: Ken Hoexter - Bank of America - Analyst : Just a sign of the weakness of the industrial economy.

Question: Ken Hoexter - Bank of America - Analyst : Very much aligned with our truck shipper survey, which is weak. Okay. FedEx Express margins, Federal Express -- FEC (inaudible).

Question: Ken Hoexter - Bank of America - Analyst : Made it tough. FEC margin -- yes, acronym. Expected to be in the mid-9s, right, for the fiscal fourth quarter, up about 220 basis points sequentially. Given the combination, the Express combination, is that a fair level to be thinking about? Are there other things we need to toss in there just given the integration?

Question: Ken Hoexter - Bank of America - Analyst : But for thinking more fiscal fourth quarter, if we're talking year-end, is that kind of the range to get to your numbers, right? Is that what in your outlook?

Question: Ken Hoexter - Bank of America - Analyst : Understood. Brie, average yields have stepped up in the fiscal fourth quarter. February, March, April. Why is that? Is that -- I mean you were talking about the new revenue stream will be even more yield accretive. Is there something that drives that as you go through the quarter?

Question: Ken Hoexter - Bank of America - Analyst : That was the most polite insult that I've ever received.

Question: Ken Hoexter - Bank of America - Analyst : So my first thought of that, you can see the room kind of light up on that is that is that we're back to pre-2019 and therefore, you're going to chase price. How do you alleviate that we're not? And then how much capacity do you think is out in the market that you need to fill?

Question: Ken Hoexter - Bank of America - Analyst : And our comparative yields are stronger --

Question: Ken Hoexter - Bank of America - Analyst : So UPS at their Analyst Day, what about 1.5 years ago or 2 years ago after how long ago it was now said there was about, what, 12 million -- average daily package is about 12 million -- 12% excess capacity. But what would you think that is in today's environment?

Question: Ken Hoexter - Bank of America - Analyst : And as I recall, that also included Postal Service capacity, I think, was a large component of it. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 12, 2025 / 10:00PM, FDX.N - FedEx Corp at Bank of America Corp Industrials, Transportation & Airlines Key Leaders Conference

Question: Ken Hoexter - Bank of America - Analyst : Okay. I want to come back to Freight for a second. Your shipments were down 8% -- sorry, move from down 8% in the second quarter, down 5% in the three, so got better. And I think the industry was down a little bit more, so it seems like a little bit outpacing the market. Your thoughts on the freight market.

Question: Ken Hoexter - Bank of America - Analyst : Okay. Amazon has been mentioned, is moving into the freight market. Is that something you see? Or is that -- I know they've talked about doing inbound freight? Is that something you -- as the largest provider out there, you see them coming into the market?

Question: Ken Hoexter - Bank of America - Analyst : John, you talked about a new leader being appointed to soon at Freight? How about the progress on building the sales force?

Question: Ken Hoexter - Bank of America - Analyst : So Brie, on pricing for the LTL. We've had some carriers talk about moving into transactional pricing, some that are lowering GRIs to keep business? What are your thoughts on the underlying pricing within Freight segment?

Question: Ken Hoexter - Bank of America - Analyst : Why is your weight so different than the industry?

Question: Ken Hoexter - Bank of America - Analyst : So John, Freight margin was 12.5%, deteriorated 300 basis points year-over-year. In the third quarter, you noted you expect the pace to decline or to decelerate in fiscal fourth quarter, is that still reasonable given the demand backdrop or drying up that you were talking about earlier --

Question: Ken Hoexter - Bank of America - Analyst : Modest improvement?

Question: Ken Hoexter - Bank of America - Analyst :

Question: Ken Hoexter - Bank of America - Analyst : Sequentially.

Question: Ken Hoexter - Bank of America - Analyst : Okay. Labor, given the blending of accessing ground, how has that panned out for distribution for employees in the cities?

Question: Ken Hoexter - Bank of America - Analyst : So your competitor blended in SurePost into their core network. You did it years ago with SmartPost back in '19 also somewhere?

Question: Ken Hoexter - Bank of America - Analyst : Yes. When you did it. Do you remember -- I know you took all of it on to your network. Did you have to do pricing actions to get that to align? Did you say we're going to keep only 75% of it because it blended? Is there a general understanding of how that market went when you brought it all on board?

Question: Ken Hoexter - Bank of America - Analyst : Remember, it took you guys forever to use the rail that was like a -- so the Postal Service contract you had for 20 years, went from making money to break even at the end as they move to minimum volume commitments. Talk about how has this freed up your network in terms of, are you done pulling the excess costs out? If not, what's left to do? How many flights did you want up going to? I think you had, what, 110 at the peak, I think you had 30 before you brought it on board. Maybe anything to understand what's happened with FedEx's network post.

Question: Ken Hoexter - Bank of America - Analyst : I think you reiterated your $4.9 billion CapEx target for the year, about 5.5% of revenues. But I think there was a mention of either some new aircraft include -- I know you had always included about $1 billion, $1.5 billion, if I remember in terms of the number, but it seemed like you were exercising options, which seemed a little odd to me, given what you're talking about, about trying to decrease Freight. Maybe just walk through your thoughts on CapEx and then your thoughts on the aircraft within that. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 12, 2025 / 10:00PM, FDX.N - FedEx Corp at Bank of America Corp Industrials, Transportation & Airlines Key Leaders Conference

Question: Ken Hoexter - Bank of America - Analyst : I'm surprised, given the aircraft background, you wouldn't just go ask somebody to give them to you for free because I hear that's a thing now.

Question: Ken Hoexter - Bank of America - Analyst : [There's] a news flow coming up. So we're almost done and everybody you can make the (inaudible) that came real soon. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 12, 2025 / 10:00PM, FDX.N - FedEx Corp at Bank of America Corp Industrials, Transportation & Airlines Key Leaders Conference We used to hear about UPS and FedEx would mention we're faster in this percentage of lanes than the other guy. We haven't heard that for a while, yet you're focused on building -- combining the network and keeping speed and efficiency. They talked about fastest -- I want to make sure I use the right term, the fastest network ever --

Question: Ken Hoexter - Bank of America - Analyst : The brand, yes, for them. Where are you on that process? Is that a competitive thing still? Or is it is that not --

Question: Ken Hoexter - Bank of America - Analyst : Yes. No, it's just something we used to hear on the road a lot from you in terms of the...

Question: Ken Hoexter - Bank of America - Analyst : It used to be a slide you had in your Road Shows as well.

Question: Ken Hoexter - Bank of America - Analyst : All right. thoughts on Amazon's third-party service. They took that down during COVID, right, in terms of they had to use their network for them. They've come back out. They've said, we're here open doors to provide service. haven't heard much about it since then. Where does that stand? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 12, 2025 / 10:00PM, FDX.N - FedEx Corp at Bank of America Corp Industrials, Transportation & Airlines Key Leaders Conference

Question: Ken Hoexter - Bank of America - Analyst : Have they not launched a trial to do pickup?

Question: Ken Hoexter - Bank of America - Analyst : So even with the 100,000 delivery vans or whatever, they can't have those drivers go out, pickup.

Question: Ken Hoexter - Bank of America - Analyst : All right. So I'll give you two last ones. Long term and short term because I have to give you the short-term stuff. But long term, what does the industry look like? What's the success at the end of this overhaul?

Question: Ken Hoexter - Bank of America - Analyst : I think as an outsider, I mean that's one of the most exciting things to see. In terms of Network 2.0, as you blend the network, how you get that one technology to integrate without interrupting customer service, which you can't interrupt customer service -- you are. Earnings, John, and earnings be positive in '25 and any initial read on.

Question: Ken Hoexter - Bank of America - Analyst : Are you excited to go back to a calendar fiscal year?

Question: Ken Hoexter - Bank of America - Analyst : We've run out of time. I'm going to summarize what kind of our key takeaways were. But do you have time for two or three questions from the audience or can we do that? Okay. So if -- while we wait for the question, I guess, if I just summarize, kind of -- it seems like volume is decelerating, but now things have changed, right? So maybe we'll see from here. You've got -- I wrote so quick. I can't even read my handwriting. You got the Network 2.0, right? It's really the -- you can really see that integration really kick off here. I'll go to the question and I'll try and organize my hand writing a little better. What I was going to writing of my knee. Unidentified Participant Brie, just I wanted to get some clarification on when you said maximizing your capacity. What sort of items are you thinking about to try and achieve that outside just pricing? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 12, 2025 / 10:00PM, FDX.N - FedEx Corp at Bank of America Corp Industrials, Transportation & Airlines Key Leaders Conference

Question: Ken Hoexter - Bank of America - Analyst : All right. With that last question, go ahead, (inaudible). Unidentified Participant All right. Just to clarify on the de minimis is when it was at 168%, what were the customer shippers doing? Were they not shipping at all?

Question: Ken Hoexter - Bank of America - Analyst : Great. Thank you so much for your time. So just to summarize, I can now read what I wrote. So volumes decelerated. We talked about acceleration Amazon, we didn't even touch on Amazon profitable revenue that you're going to absorb. You were very crystal clear on what you're taking. It was profitable, but it's not revenue, profitable, right? DRIVE really successful, John was talking about the details of DRIVE how you do that. And I think Network 2.0, do it with precision is the most important part to protect the service. That was clear. Thank you very much for all the details tonight. I got through virtually every question. So I truly appreciate you taking the time joining us again for the conference. Thank you.