FedEx Corp Q1 2025 Earnings Call Transcript

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

Question: Brian Ossenbeck - JPMorgan - Analyst : Hey. Good evening. Thanks for taking the question. Just wanted to see if you could give a little bit more color on the negative mix shift. It seems like it's pretty pervasive but maybe a little bit in the US and also some international. And why do you think you can push through the additional demand surcharges, fuel surcharges and the GRI? So maybe you can square those two together because it doesn't seem like it's a constructive environment to keep on raising prices at that level. Thank you.

Question: Jordan Alliger - Goldman Sachs - Analyst : Yeah. Hi. I was wondering, you talked about the lower-than-normal second quarter EPS seasonality. Can you give some sense for order of magnitude below normal? And how do you define normal? Is it like a percentage of typical full-year earnings? And I guess following that, what gives confidence on the sharp second half ramp? Is it more of the economy? Is it mix? Is it B2B coming back? Thanks.

Question: Jordan Alliger - Goldman Sachs - Analyst : Thank you.

Question: Jonathan Chappell - Evercore ISI - Analyst : Thank you. Good afternoon. John, sticking with that theme, you noted the $390 million in DRIVE in the first quarter was lower than what you anticipated. So can you help us understand why that fell short of your first quarter target? And if you're not -- and if you can't give the cadence quarterly from here or at least how much it's going to be back half weighted, what gives us the confidence that the $2.2 billion is still attainable when coming off a quarter when the quarterly target can be hit?

Question: Jonathan Chappell - Evercore ISI - Analyst : Thank you.

Question: Thomas Wadewitz - UBS - Analyst : Yeah. Good afternoon. Wanted to ask you about some of the pressure from purchase transportation costs that were up quite a bit. I think you alluded to them being driven somewhat by international economy growth. And I guess the question is, is there something that's a little bit wrong right now with international economy that you're not making money with it or it's just like calibrated wrong? Because it seems like that's part of the problem with PT going up. So yeah, how do we think about IE and also the equation for PT expense to be more manageable and less of a drag on margin? Thank you.

Question: Daniel Imbro - Stephens - Analyst : Thanks. Good evening, guys. Wanted to ask one on the FedEx Freight side. So you guys have been closing locations for a little while. You closed more here in 1Q. I guess, how are you thinking, John, about capital deployment towards that segment and actually reinvesting into growth? And then as it relates to the strategic review, whereas I understand by year-end, we'll get the update. But what are the factors you guys are still digging into as you decide what's the best decision for this asset over time? Thanks.

Question: Christian Wetherbee - Wells Fargo - Analyst : Hey. Thanks. Just as we're thinking to try to calibrate a little bit appropriately here, John, maybe if you could help us on the second quarter, is there enough in terms of the walk as you move from 1Q to 2Q for earnings to be up sequentially? I guess, would maybe be the first question. And I guess maybe for Brie, just very quickly on the pricing side. Obviously some big peak season surcharges that have come -- you've been announced so far, I guess. How do you think about the compliance or capture rate around that? And any early indications you're having from your customers on their -- the likelihood of them coming to fruition?

Question: Stephanie Moore - Jefferies - Analyst : Hi, guys. Thank you. Maybe taking a step back here, looking at the quarter, clearly, some challenges outside of your control really that you called out impacting the top line and the full year expectations. But as look at the performance of the quarter, given it was a bit more of a challenging top line environment, still saw a pretty material impact to overall earnings going quarter to quarter here, 4Q to 1Q. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 19, 2024 / 9:30PM, FDX.N - Q1 2025 FedEx Corp Earnings Call So as you think about your ability to flex your network and adjust to maybe some of these challenges that can pop up intra-quarter, how would you rate your performance? And as you think back, is there something that should have been done differently? DRIVE savings, you obviously have called out. But just as again you can flex your network, maybe just some insight there would be helpful. Thanks.

Question: Brandon Oglenski - Barclays Capital - Analyst : Hey. Good afternoon. Thanks for taking my question. Raj, I guess if I listened to the call only, it sounds like DRIVE is working, FedEx One is well underway. The Tricolor initiative is supposed to be delivering profitable market share. But -- and I guess it's just feeding off that last question. The reality is this is one of the lowest profit first quarters that we've seen since maybe 2009. And EPS is very much run rating well below your full year range here. So I think it's just -- it's really hard to get credibility with investors with these types of numbers and with costs that are actually up, even though supposedly DRIVE is underway. So I don't know, can you just give us some concrete examples of what's going to change? I get it the post office contract is going away. I think taking down daytime flying is a step in the right direction. But incrementally, how do we get to that much higher earnings run rate?

Question: Jason Seidl - TD Cowen - Analyst : Hey. Thank you for taking my question. How should we think about the overall macro? I mean, we've seen a very weak industrial environment. You guys seem to point to weaker parcel volumes and then even a trade down. I guess what's in your assumptions going forward for the overall macro. And then as a follow-up, if there is a strike on the East Coast ports and gulf, how could that potentially impact any air freight volumes side?

Question: Scott Group - Wolfe Research - Analyst : Hey. Thanks. Good afternoon, guys. I'm in an airport so sorry about any background noise. Raj, I know we're not through the review yet for LTL, but maybe just, what are the puts and takes, the pros and cons? And if you can say, are you -- do you feel like it's more or less likely that you move forward with the sale or spin? And while we're on the just topic of like strategic reviews, is there a point where you think about strategic options for the Europe business if we can't get that to profitability?

Question: David Vernon - Bernstein - Analyst : Hi. Sorry about that. I was in the airport. I'm just trying to keep the background noise down. So John, if you think about the cadence of earnings for the remainder of FY25, the [60, 90] or so, can you give us a sense for how much of that is front versus back end loaded? And then I know you can't really talk much about the -- beyond the fact that the freight review is ongoing. But there's been some discussion in the market about whether the freight margins, as they're reported with intercompany costs, would be similar to what they might be coming out if it was a stand-alone business. Can you just talk conceptually whether the intercompany costs that are charged to the freight business right now accurately reflect what a burden might be if you had to equip it with the sales force, for example? Thank you.

Question: J. Bruce Chan - Stifel Financial Corp - Analyst : Hey. Good evening, everyone. You made a couple of mentions of the strong Asia export volumes. Can you just maybe level set on how much of that is coming from the big two or three Chinese e-comm players and how you're thinking about those volumes heading in the peak season? And then maybe just a follow-up. If we think about these players taking down a lot of capacity during peak season and maybe pushing airfreight costs upwards, what's the net impact here with Tricolor? I'd imagine that there's some tailwind to the Purple Tails but maybe there's continued PT pressure on some of the other colors. So just maybe some thoughts on how we should think about that.

Question: Ken Hoexter - Bank of America Securities - Analyst : Great. Thanks for squeezing me at the end. I guess maybe just there's still, it seems to be, a bit of confusion based on a lot of questions coming in just on the margin outlook, right? So if you're -- well, I guess one, sequentially, John, you did say it's going to be up both sequentially and year over year, right? I think you threw the two things together. But if Raj, I guess if we're talking about 5% combined margins now, is the economy service a negative margin business that is dragging you down? If International is still losing money, does the $600 million you're talking about get you to breakeven versus peers at 20%? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 19, 2024 / 9:30PM, FDX.N - Q1 2025 FedEx Corp Earnings Call Maybe you can talk about where does this go once you're done with the DRIVE savings before Network 2.0, but what is the flow-through that we can expect on a net basis?