FedEx at Deutsche Bank Conference: Strategic Focus Amid Challenges

On Wednesday, 13 August 2025, FedEx Corporation (NYSE:FDX) presented at the Deutsche Bank US Transportation Conference 2025, outlining its strategic direction amid a challenging economic landscape. CFO John Dietrich shared a cautiously optimistic outlook, highlighting both achievements and hurdles. Despite headwinds such as the termination of a key USPS contract and tariff impacts, FedEx achieved earnings growth for the second year in a row, while focusing on cost management and network efficiency.

Key Takeaways

• FedEx achieved two consecutive years of earnings growth in FY25, despite significant challenges.
• The company is targeting an additional $1 billion in cost savings for FY26, driven by the DRIVE program and Network 2.0.
• FedEx is advancing its strategic initiatives, including the Tricolor and Network 2.0 programs, to optimize asset utilization.
• The company plans to spin off FedEx Freight by June 2026.
• No full-year guidance was provided due to market uncertainties, but updates were given for Q1.

Financial Results

• FedEx delivered $4.3 billion in returns to shareholders through share buybacks and dividends in FY25.
• The DRIVE program resulted in $4 billion in cost savings, with $1.8 billion achieved in FY24 and $2.2 billion in FY25.
• Facing approximately $170 million in tariff-related headwinds, primarily from China.
• Capital expenditure is set to reduce to roughly $1 billion annually by FY26, with FY25 CapEx being the lowest in a decade.

Operational Updates

• Network 2.0 now handles approximately 15% of average daily volume, with significant station reconfigurations.
• The Tricolor initiative enhances network flexibility and contributed an additional $200 million in operating income in Q4.
• FedEx reduced Asia to US flights by 25% due to declining volumes, reallocating resources to other markets.
• The company is acquiring RouteSmart for improved ground route planning.

Future Outlook

• The B2B market remains soft, while B2C showed strength earlier in the year but has started to weaken.
• FedEx is preparing for additional pressures from de minimis regulations beyond China.
• The company is redeploying US-based expertise to Europe, targeting $150 million in back-office savings by FY27.

Q&A Highlights

• The pricing environment remains competitive yet rational, with FedEx passing along some increases.
• FedEx is revisiting its relationship with Amazon, focusing on higher-yielding, larger packages.
• The LTL business is slightly underperforming but aligns with industry trends.
• FedEx is prioritizing technology, including the Digital Twin and AI, to enhance operational efficiency and data monetization.

Readers are invited to refer to the full transcript for a detailed account of FedEx’s presentation at the conference.

Full transcript - Deutsche Bank US Transportation Conference 2025:

Richard Harnain, DB’s lead transportation analyst, DB: Okay. Maybe we can kick it off then. Hello, everyone.

I’m Richard Harnain, DB’s lead transportation analyst, and welcome to day two of our transportation conference. So mainly one on ones and small group meetings today, but we have one special fireside, and that’s with John Dietrich, CFO of FedEx, a leader in transportation and logistics. So we also have with us today Mac DeBerry and Steven Hughes from the Investor Relations team. So maybe to start, I’ll kick it off to Steven to make some introductory comments and then we’ll get right into it.

John Dietrich, CFO, FedEx: Great. Thank you, Risha. Certain statements may be considered forward looking as defined in the Private Securities Litigation Reform Act and subject to factors that could cause actual results to differ materially from those expressed or implied. For additional information, please refer to our press releases and filings with the SEC. Great.

Well, thank you for that, Steve. And, Richard, thanks so much for having us here. We’re glad to be here. I thought I’d open with some remarks, before we get into the q and a, just kinda give you some high level overview, if that’s okay?

Richard Harnain, DB’s lead transportation analyst, DB: Let’s do it.

John Dietrich, CFO, FedEx: And, as I think we all know, continue to be in in in uncertain market environment. You know, that said from a FedEx standpoint, there’s a lot of exciting things happening, and, we’re focused on executing on those things with within our control. And and when you look at the, you know, global marketplace, you know, we’re we’re right in the thick of all of it, you know, with 3,000,000 customers carrying roughly $2,000,000,000,000 of of goods every year. You know, we’re closely involved and also closely watch everything that’s happening in the marketplace. We also happen to be in the midst of a massive transformation, and I think there’s a lot of idiosyncratic benefits we have in the competitive space in which we operate, which we’ll talk more about throughout the morning here, including network2.o.

That’s all part of one FedEx, our tricolor initiatives, and and other strategic initiatives that we’ve been working on. As I reflect on the last couple years actually, but f y ’25 particularly, we’re we’re we’re pleased with the results that we delivered in this environment. We had two years of earnings growth. In FY ’25, it the second year of earnings growth despite some some headwinds, the market environment, of course, but also, you know, the termination of the US Postal Service contract that we experienced. And when you factor in two fewer operating days, you know, we feel good about that growth.

And then, oh, by the way, throw the tariff environment and the market uncertainty into the equation to have that that growth in that environment was was pleasing to us, but there’s still a lot more to go. Drive was a success. We’ll talk more about Drive and our journey and Drive going forward. But we set out on a goal of $4,000,000,000 of Drive cost, structural cost takeouts, and delivered 1.8 of that in f y twenty four, and we said we’re gonna get 2.2 of that in f one f y twenty five, and we delivered on that. So we’re pleased with that.

We advanced network2.o, and we’ll talk more about that. That’s gonna continue to yield results as we go forward. From a capital standpoint, I’m also pleased that we delivered significant value back to our shareholders. The total when you take our share buybacks and dividends, $4,300,000,000 of of returns, all in an environment, you know, that’s as as as challenges we talked about. So being able to deliver all that in f y twenty five was was satisfying.

That said, we don’t rest on our laurels. We have still have a lot to to go. We’ve set a marker up for f y twenty six of an additional billion dollars, largely made up of drive savings and some network2.o. We have as well as that our freight spin, which we’ll talk about, which is gonna be a significant focus area of ours as we go forward here. And then all the other strategic initiatives we talked about, network2.o, being a primary one.

Richard Harnain, DB’s lead transportation analyst, DB: Yep. Alright. Yeah. A lot of exciting things happening in FedEx, and I hope to get into that. But maybe we can kick off with zooming in on the macro outlook.

Right? You said you serve 3,000,000 customers over 200 countries across the globe, so many tend to look at FedEx as a barometer for the state and health of the global economy. Therefore, in broad strokes, maybe you can start with telling us how you think the consumer is doing, how our business is feeling based on, you know, the trends out there today in FedEx business and what you’re sensing in terms of b to c versus b to b dynamics, SMBs, etcetera. Mhmm.

John Dietrich, CFO, FedEx: So I’ll start with with the b to b environment. You know, we’ve seen the softness continuing. If you look at the ISMPMI index has been, you know, below 50 for roughly 31 of the last thirty three months. So that b to b market has been somewhat soft and is continuing. Conversely, on the b to c market, that’s been stronger.

We saw strength particularly in the in in June and the July, but that’s starting to soften a little bit as well as the latter part of July and August. On the international front, there’s been the impact of of the tariffs for sure. You know, as we said, we’re facing for q one about a 170,000,000 of headwinds from the tariffs, largely the result out of out of China. Mhmm. So, you know, it’s been a a challenged environment, but, again, one in which we continue to focus on those things, our control to to deliver results.

On the international export front, again, we’re starting this feel the impacts of that, but we’re monitoring that very closely.

Richard Harnain, DB’s lead transportation analyst, DB: K. Okay. So a lot there that, you know, I’m gonna come back to, but maybe we can go from there into, you know, your outlook. You chose to withhold full year guidance. I thought that was pretty prudent in light of, you know, all the the uncertainty out there that you spoke about and global trade in particular, which you facilitate.

So you but you did provide an update on the quarter. And, John, before I get into the question, kudos to you. I think since you’re appointed CFO, our analysis shows that the FedEx outperformed the broader transport landscape on earnings revisions in five of the past seven quarters. So your team has been doing a better job than average and at least doing what you say you’re gonna do. So so, again, good job there.

But just, you know, now to the questions on the outlook for q one, you know, competitor of yours recently reported and spoke to weakness in China being severe. I know you spoke to this as well. You said it’s contemplated in your guidance at 170,000,000. Right? Mhmm.

You said that things continue to remain under pressure. I believe you said in July, it got potentially Starting

John Dietrich, CFO, FedEx: to soften the back soften in the back Yeah.

Richard Harnain, DB’s lead transportation analyst, DB: So any updates to your view on q one? Are you how are you tracking there?

John Dietrich, CFO, FedEx: So I’ll start by saying we continue to operate in a in a uncertain environment, but I think you hit it on the head what we talked about. The b two b softness has continued. We haven’t seen any change to that. On the b two c lanes, we have, as I said, we saw strength in through to about the mid July time period, but that’s starting to soften. So we’re taking a close look at what we’re gonna see in in August and for the remainder of August and look forward to keeping you posted on that as we go forward.

Richard Harnain, DB’s lead transportation analyst, DB: K. But you in the domestic market, so again, 75% of what what you do just on a direct basis is you do domestically. Right? You have been there’s been a nice share growth story there. Your volume, for instance, in the last quarter domestically were up 6%.

And at that point, it sounded like based on the trends then, you’re tracking to, like, the high end of the guide. So just in light of what’s happening in the domestic market, maybe more specifically, we like, it may be the midpoint of the guide contemplated some sort of weakness, which is kind of what you’re speaking to, on the b to c side softening, but maybe talk talk through that a little more.

John Dietrich, CFO, FedEx: Yeah. I’m not really gonna to, talk about where we expect to to fit within the guide, but what I can say, is with regard to, the b two c volumes, again, we saw strength, in the first part of of the the quarter, I guess, the first half of the quarter.

Richard Harnain, DB’s lead transportation analyst, DB: Mhmm.

John Dietrich, CFO, FedEx: And as we look forward into August, we’re gonna keep a close watch on that and look forward to keeping you posted when we deliver our earnings in September.

Richard Harnain, DB’s lead transportation analyst, DB: Alright. Fair enough. So maybe we can switch gears and talk about de minimis. Any exceptions seem to be removed beyond China, Hong Kong. What risk do you think this presents?

What were your learnings from your risk initial round of de minimis exceptions going away, and how those prepared you for this?

John Dietrich, CFO, FedEx: Right. So you you hit it correctly. You know, public data reflects about 75% of the minimum volumes come out of China, and I think that’s a nice proxy for for our business as well. And I think it’s reasonable to expect once it applies to the rest of the world, we will feel some some impact of that. I what I can say though is I think we are state of the art in terms of a leader in how we’re helping our customers manage this environment to minimize the impact of that, leveraging our our global network, our our clearance capabilities, and our technology.

So we feel really good about where that is, but I think it’s reasonable to expect there’s to be some additional pressure beyond just the the 75% reflected from the China volumes. Okay.

Richard Harnain, DB’s lead transportation analyst, DB: So maybe we can switch gears and talk about the competitive backdrop. Pricing has been a bit of a bright spot in the parcel industry. Recently, number of increases, you you just announced your peak surcharge. That was good. We also now have David Steiner start at the postmaster general at the at the UPS.

He’s supposed to come to the conference, by way, but had a scheduling conflict. But, yeah, he’s won from the business community, did some great things at waste management. I know he served on the FedEx board as well, so you would expect him to maybe lead for the USPS as a more rational competitor. UPS has shown a strong commitment towards improving his revenue quality as well. So talk us through maybe, you know, what you make of the competitive landscape and if the pricing trends of late that have been more positive are enough for you to feel good about your ability to generate, you know, fair return.

John Dietrich, CFO, FedEx: Sure. So I’ll I’ll first start with with David. I’m quite sure he’s very busy now. I ran into him at a social event, and he was describing the the significance of the role in the US Postal Service operation, is which is no surprise. And I think it’s good for our nation that someone like David with his great experience and business acumen will be serving at the Postal Service.

So I’ll start there. You know, from from a a a peak season standpoint and a pricing competitive standpoint, you mentioned our peak season search search surcharge that will compensate us for the additional cost and work and and managing our peak volumes. We also have recently, and it’s reflected in our in our guidance, you know, there are some fuel table, increases as well, some adjustments. So I think it’s fair to say, it’s still a competitive and rational pricing environment, that reflects, the work, that that we’re doing in the marketplace. Still competitive, still rational.

But again, we’ve been able to to pass along some some increases along the way. With regard to the postal service, I’ll just say, you know, one of the things from a a competitive standpoint, I think there could be some structural uplift in the pricing environment if they are not subsidized by our taxpayers. It’s one of the things, particularly in the parcel business, one of the things we’ve said consistently. You know, the Postal Service operates at at a significant loss, and a lot of that loss comes from moving parcels. So to to not have that further subsidized by the taxpayer, we think would be favorable to the competitive pricing environment.

Richard Harnain, DB’s lead transportation analyst, DB: Okay. Alright. Let’s talk about capacity. So, you know, you’ve been rational about capacity. I know, you know, more so with this network2.o, and we’re excited I’m excited to talk to you about that.

And peers have been as well for the most part, but, you know, a common concern out there is that, you know, capacity reductions, UPS, and you are making or perhaps being backfilled by Amazon. The threat of Amazon and some new entrant carriers that we hear about such as laser leadership are quite significant. So maybe you can present your latest thinking there, how you get comfortable around new entrant capacity and things like that.

John Dietrich, CFO, FedEx: Well, I’ll start by saying we always pay attention when any new capacity comes into the marketplace, but I I think it’s also important to note the differentiation between what we do and what others are doing. And I’ll use Amazon as an example. I mean, they’re they’re they’re a very good company. No doubt about it. But effectively, they’re a retailer that delivers.

And from our standpoint, FedEx has built a network over many, years that is an end to end logistics provider. And so that’s that’s an important distinction, and I’ll use as an example in our ground service, you know, on on balance, roughly, you know, 30 or excuse me, 70% of our ground volumes travel, you know, 300 miles or more, 30% travel 600 miles or more. I think those numbers are are pretty close. 50%. Yeah.

I’m sorry? Yep. So half Yeah. Would be from origin to destination for 600 miles. That’s right.

Yeah. You know, and by comparison, for example, Amazon is a retailer who delivers. They’re in proximity is about a 100 miles. Right? So, you know, that’s a significant difference.

So we continue to leverage our strengths. We continue to leverage our global network and deliver our, you know, quality service for our customers. And, you know, I’ll get back to the pricing environment for a moment. I think it’s another differentiator for us. We continue to get a yield premium for the great service that we offer, and I think we’ve earned that.

And we’ll focus on continuing to leverage our capabilities there.

Richard Harnain, DB’s lead transportation analyst, DB: Okay. Good stuff. Alright. So regarding the concept of, you know, recently you talked about this prioritization of network utilization and I think that’s led to some of the good results. But I wanted to offer you an opportunity to comment, maybe clarify any potential misconceptions about that.

You know, our understanding is FedEx aims to maximize network fill while maintaining or enhancing overall profitability. Right? Like, we’ve observed this in recent quarters. I think last quarter revenue was up 1%, and it was primarily driven by deferred services. But, you know, EBIT was up 9%.

So, know, you’re seeing that that benefit of filling in your network, the nooks and panties, if you will, with one of those deferred offerings. Does that accurately summarize your perspective on utilization prioritization or, you know, how would you describe it?

John Dietrich, CFO, FedEx: Yeah. No. I think that’s a a a fair assessment. That said, our focus is always on revenue quality, and and the nuts and crannies are important to fill in in a large network like we operate. That’s important.

But it’s also important to focus on the higher yielding, you know, volumes as well. And I think the the Amazon volumes is a good example. You know? Yeah. Heavier, more dense, larger packages.

That that’s one of our strengths in being able to carry that, and it generally comes with higher yields as well. So, you know, from our standpoint, yes, we wanna fill the network. Yes. You know, we wanna focus on the the b two b, the higher yielding. But while that remains soft, it’s important to take advantage of the highest yielding revenue quality in the, you know, b two c.

Because not all the b two c is very equal and we’re focused on that which is, the highest yielding.

Richard Harnain, DB’s lead transportation analyst, DB: Yeah. So was gonna ask about the Amazon business, that relationship being turned back on. Mhmm. Talked about that being higher yielding business for you.

John Dietrich, CFO, FedEx: Yeah.

Richard Harnain, DB’s lead transportation analyst, DB: Wanna further elaborate there?

John Dietrich, CFO, FedEx: Yeah. No. That’s exactly what we just described. It’s generally some of the higher yielding, larger, heavier packages that we can do frankly better than anybody and make money doing it. So, you know, we’ll look forward to ramping that up.

Richard Harnain, DB’s lead transportation analyst, DB: Great. Great. So maybe we can pivot there to FedEx freight. Mhmm. You talked about that, you know, large you know, we had some of your large public competitors in the industry report and discussed a pretty muted June offset by better July.

Did you see the same dynamics? How is business, how is this business doing, and how is the addition of salespeople going up for for the spin off? Mhmm.

John Dietrich, CFO, FedEx: Yeah. So, yeah, the the the LTL business is performing, you know, slightly lower than we expected, and that I I think it’s probably fair to say in line with the with the industry or what the industry is experiencing. Yeah. It’s important to remember that 90% of our freight volumes are related to B 2 B, so it feels the effects of when the the the B 2 B business is soft. So I would say that we’re very well positioned for when the market recovers for sure.

I talked about the freight spend in my introductory remarks. We’re moving forward, making a lot of progress there, getting the executive team together. We made some public announcements of, you know, the CEO and and the chairman of the board. We have a CIO, and we’re filling all the rest of the management spots. So that all that work is progressing and look forward to keeping you all updated.

We do plan to effectuate the spin in June ’26 as we talked about. That hasn’t changed. So look forward to keeping you posted on that.

Richard Harnain, DB’s lead transportation analyst, DB: Okay. And then just on that note, can you just touch on your decision to delay enforcement on the NMFC updates until, I think, December. Right?

John Dietrich, CFO, FedEx: First. Yeah.

Richard Harnain, DB’s lead transportation analyst, DB: Yeah. Elaborate on the reasoning there.

John Dietrich, CFO, FedEx: Yeah. That was really kind of a a customer friendly gesture on our part to be able to we received feedback that our customers were looking for a little bit extra time. We certainly, you know, subscribe to and support the more simplified density based, you know, classifications, of course. And any customer who can get on board sooner, but based on feedback we received and the, you know, willingness to accommodate our customers, that was really what went into that decision.

Richard Harnain, DB’s lead transportation analyst, DB: Okay. Alright. Now let’s get into the fun stuff. I noticed Energize that you talk about the stuff that’s within your control. Right?

Mhmm. Network2.0 to start. 15% or or so give or take of your network now is integrated, I believe. Right. How is that plan progressing?

John Dietrich, CFO, FedEx: Yeah. So network2.0 is progressing. You’re spot on with that 15%. Roughly 15% of our ADVs is being handled now by network2.0 stations. We closed about a 100 stations and reconfigured about 290 stations as part of this.

Canada is effectively completed, and now we’re working on the the the lower 50. So, yeah, the work is progressing. It’s it’s really important work. And, as I think as we look towards investor day in q one of next year, we look forward to getting more comprehensive briefing on that.

Richard Harnain, DB’s lead transportation analyst, DB: Okay. Would you be willing to share, like, kind of some tangible examples, biggest challenges you’ve come into as you execute network2.0 versus, you know, things that maybe went smoother than you thought?

John Dietrich, CFO, FedEx: Yeah. The way I like to break it down is really three major categories. Right? You got your people, facilities, and technology. Mhmm.

And anytime people are involved, of course, it’s gonna be behavioral change and change it needs to be managed. So I I think it’s fair to say that’s probably the more sensitive item of the big three on on my radar. I think you gotta treat our people fairly throughout this and manage that, all while making sure we’re not at all adversely impacting our service. And I think from that standpoint, it’s going pretty well. On the facility side, we keep learning more and more.

Every facility we we we alter and make into a network two dot o facility. We have a team of people dedicating significant resources to doing kind of debriefs and downloads, what went well, what did not go so well. And, of course, the technology is an important piece of it too. Route efficiency, is is critically important in a network 2.0 environment. And as you may recall, we recently purchased a company, which we had done business with for many years called RouteSmart.

We had done business with them for many years, which was largely a ground route planning tool that we think effectively works in a network two dot o environment. So we’ve adopted that as our technology going forward among other technologies, and as you’d imagine, it’s pretty comprehensive list of technologies. But I’d say people on the forefront is is is top of mind and, you know, using as an example behavioral change or, you know, couriers who were used to day definite may have some time definite requirements on on them. And so working together with them on how they can best manage and handle our priority products most efficiently. And there’s opportunities for them to make more money too.

We’ve been reconciling our compensation programs for our our contractors and our couriers and so forth again to have most positive outcome and deliver for our customers.

Richard Harnain, DB’s lead transportation analyst, DB: Okay. So we can talk now maybe about Tricolor. That was one of the stars, I think, of last quarter, right, allowing you to quickly adapt, flex capacity in response to rapidly changing demand, especially on the international side. So talk to us about what exactly this initiative entails. It took me a while Yeah.

To get there on, you know, like, what exactly you’re doing, how it’s going, what’s left to come.

John Dietrich, CFO, FedEx: Sure. And I you know, you touched on one one piece of it. The tricolor initiative really allows us the network flexibility to adapt to a changing demand environment. But, also, to point a phrase, kind of put courses to courses in terms of our assets. Right?

And, you know, with regard to the flexibility, for example, with the decline in volumes out of Asia, we were able to bring our Asia to US flights down by roughly 25% during the, you know, the kind of the impact of the tariffs, and redeploy those assets to other markets where we didn’t see demand drop and or saw demand improve. And our tri color really we we call Tricolor for three colors, purple, orange, and white. And the purple is really designed to utilize our assets, our aircraft, or that which was designed to do for speed of the priority products and to use the aircraft and our hubs most efficiently to maximize our profits on our most highest yielding business. So that’s the purple piece of it. And then you have the orange network that’s designed to take advantage of a market.

We really haven’t act as much as we could on the air freight market, the heavy air freight market. And to utilize that extra time we have with our orange, also our aircraft, utilize the extra time we have to maximize density in those aircraft on the heavy freight market, but not bring that freight into the hub to burden the hubs like Memphis, for example, but to find alternate points to distribute the air freight into our expansive ground network. So, it’s really a service offering that’s unparalleled that we can do in house that, for example, the freight forwarding community, needs to contract multiple services to accommodate what we believe we’ll be able to do with our orange network. And then the last one is the white. And, again, built in some some opportunity with the white network, which is really belly capacity of commercial carriers, that you gauge your demand level.

And this is one where we can get at a lower cost. It brings our cost to serve volumes in the belly networks, for some of the, higher volume, lower yielding products. And that you can flex based on your forecasted demand and how much belly capacity and not be burdened by the cost of the asset. So we’re excited about that. I talked about the Orange Network on the freight.

You mentioned one of the shining stars contributed an additional $200,000,000 of of operating income for us, in fourth quarter. So, you know, we feel good about that trajectory and still a lot of market to tap into with the Orange Network. Done. You know, those savings should continue. Right?

Yeah.

Richard Harnain, DB’s lead transportation analyst, DB: Okay. So drive saving. It’s interesting you said it was a great success. It was. Mhmm.

But it seems like there’s still some left to do there. Right? $1,000,000,000 you talked about for 2026, but that’s drive+network2.0 after $2,200,000,000 last year. On drive specifically, you know, what’s left to do here that you’re most excited about? And if things go right, could that surprise to the upside?

John Dietrich, CFO, FedEx: So drive, I don’t I I it’s worth repeating. We feel really good about the the 4,000,000,000 Mhmm. You know, the 1.8 in f y twenty four and the 2.2 in f y twenty five. And what that did in addition to achieving our results, it also instilled in the organization a mindset that, hey. This works.

You know? We we we can do this. And so we set our next target, as you said, at the $1,000,000,000. The way we view drive, the way of doing business, it’s kind of a, from our perspective, a journey, not a destination. And so, you know, a lot of opportunities in some of the things we’ve already done, group planning.

There’s some back office opportunities we have. Europe will be a big focus for us on on drive. You know, we we’re pleased to have delivered the 600,000,000 we set out for, you know, in Europe, but there there’s more to be done there.

Richard Harnain, DB’s lead transportation analyst, DB: Okay. So that leads well into my next question, which is on Europe. A lot of excitement there. You know, recently around momentum, we talked about customer wins. Maybe give us, like, a more fulsome update.

Can we look forward to more media metrics maybe at the Investor Day also? Q ’1 next year, right, we’re gonna have an Investor Day of sort of, you know, your business year, profitability improvement stats, anything that allows investors to follow along with some of the good progress that you’ve shared?

John Dietrich, CFO, FedEx: Sure. So we do look forward to investor data elaborating further. What I can say is Europe is a primary focus and an area where we have more runway of opportunity. We feel good about the progress we’ve made. Our service levels have improved, which has allowed us to gain market share.

That’s this is another area that I think can benefit from further back office restructuring, if you will. And we talked about a number of a $150,000,000 eventually. It takes sometimes in Europe a little bit longer to adjust your back office structure under the European rules. But that $150,000,000 we expect by f y twenty seven. Route planning, package efficiency, condensing our our our stations, in station efficiencies, all these things are being looked at and implemented.

We also are focused on more ground capabilities. In fact, you may have heard us say we’ve redeployed some of our US based ground expertise and redeployed them to Europe. I think we’re second to none in what we do here in The US, so we wanted to leverage that expertise and bring it to Europe. So those are some of the things that that are in play in Europe and recognizing that, you know, from a competitive standpoint, our competitive juices are flowing here. We wanna wanna do better in Europe.

Richard Harnain, DB’s lead transportation analyst, DB: Okay. One quick follow-up. Just like, you know, how how did it take long this long to get here? Is it just now you feel like you’ve gotten this momentum on the domestic side and so you have that leverage to, you know, let them borrow your team in in Europe and Yeah. Just yeah.

Like So

John Dietrich, CFO, FedEx: you know, I I wasn’t here during that period, but I can say from my perspective looking back in time, there were a number of things. I think as I reflect on it, we had two major traumas to Europe. We had the the the cyber event Yep. And also a significant damage to one of our four facilities in Europe. I I also think as you look back, there was, from my perspective, a such a customer focus to not change and disrupt that at some point, it was harming us more than helping us in terms of bringing the networks together.

So, sometimes changes is is challenging. And when you’re bringing, you know, two organizations together like we did in Europe with ENT, there were challenges and hindsight’s always twenty twenty. But what I can say is we’re excited about what lies ahead.

Richard Harnain, DB’s lead transportation analyst, DB: Alright. Very good. Okay. So technology now. You know, when you and I and and Raj were on the road, something that was very exciting of a topic for you all to talk about.

So, you know, this concept of a FedEx digital twin. And so, you know, based on our time together on the road, you talked about, you know, the value unlocked from this. Maybe you can elaborate for the group here. You know, some new things FedEx is doing on the technology side. How are those initiatives yielding results to the bottom line?

John Dietrich, CFO, FedEx: Yeah. Yeah. So this is something that we’re passionate about. Our CEO is very passionate about this. And really two main categories from my perspective.

One is how can we operate more efficiently and and leverage technology to do even better than we do today. And SenseAware is is FedEx Surround is another feature where we’re leveraging technology to not only create a better value proposition for our customers, but also to be able to get further yield and and get paid for, you know, that technological investment. You know, the other piece of this too is when you consider the significant amount of data we gather on a daily basis, it’s extraordinary. And just to reflect for a moment, we had a memorial service for our our founder who passed away just earlier this week, and there was a little segment that was featured back from the mid nineties that talked about FedEx as a, you know, a technology and an information company, all the information we gather.

So dating back to even the the mid nineties, we’re focused on leveraging technology and the information. And now in this current environment, we’re just take looking to take it to the next level. You know, how can we leverage AI and how can we leverage technology not only to help our operations, but how can we monetize and unlock the value of the significant data that we collect on a daily basis. And we just talked about, you know, the 3,000,000 customers, 2,000,000,000,000 worth of goods, but that translates into 17,000,000 packages a day. And who’s shipping?

Where are they shipping to? Why are they you know, there’s just all kinds of data that we have available to us that we’re looking to leverage.

Richard Harnain, DB’s lead transportation analyst, DB: Okay. Right. So I guess, like, putting it all together, you know, when Raj started this transformational plan, I think it’s back in 2022, it was built off this premise that FedEx didn’t have a revenue problem as much as it had a cost problem that needed to be addressed. Right? And the team did a good job addressing it.

We talked about drive, high color, and now you’re doing network2.o. And we thought it was interesting, you know, this past quarter, FedEx’s overall express business, you know, you had a margin of 200 basis points better than UPS’s domestic business despite, you yours is a total apples to orange kind of comparison because you have the the international built in there, that’s probably being held back by Europe in the most recent quarter. And I know there’s some seasonality, but, you know, maybe just talk about the next phase at some of the positive changes you’re making season. What do you think blue sky margins that Express could go could look like in, like, medium, long term scenario?

John Dietrich, CFO, FedEx: Yeah. So what what what I can say is margin expansion is a significant focus of ours. Right? It’s certainly a significant focus of mine, and I I hope you find it’s reflective in a lot of the actions we’ve taken. We talked about, you know, some of the network efficiencies of network2.o, drive, tricolor, all that is focused on margin expansion.

Our CapEx program and the the successes we’ve had in bringing our CapEx down as well, that’s all focused on margin expansion. I’m not gonna give any specific numbers other than to say we wanna be best in class. We wanna be the highest margin, most profitable company in our space.

Richard Harnain, DB’s lead transportation analyst, DB: K. Again, something that you can look forward to for the investment.

John Dietrich, CFO, FedEx: Talking more about that at Investor Day for sure.

Richard Harnain, DB’s lead transportation analyst, DB: Last one, capital allocation. So you talked about you did a great job last quarter or sorry, last year rather. And yeah. So as a percentage of market cap, you’ve had some of the highest capital returns transportation. So what are the latest priorities on cash flow, balance sheet targets, the like?

John Dietrich, CFO, FedEx: Yeah. We’re gonna continue to invest in the business. We talked about network2.o, roughly 700,000,000 of our CapEx budget for next year is attributable to the facilities, redesigned and or network two dot o new facilities. From an aircraft standpoint, we set out a target to bring our CapEx down, from roughly run rate north of $2,000,000,000 a year. Our target was to be at $1,000,000,000, roughly by f y twenty six and for the subsequent years.

We’re on track to achieve that. So I I think that’s a shift in how the company has has managed its assets. That’s not to say we’re not going to order new airplanes at some point in the future. We’ll need to keep a modern efficient, fleet. But we brought our CapEx down considerably, and you tie that in.

As as you said, I think our CapEx in FY twenty five was the lowest that had been in in ten years or or since the company was the FedEx Corporation was founded. So a lot of focus on that and bringing our CapEx down. And then finally, you know, returning to shareholders. Right? We’re looking to return capital to shareholders kind of in line with in parity with our our free cash flow.

Richard Harnain, DB’s lead transportation analyst, DB: Real quick follow-up because you’re an airplane guy. So I’m gonna give you an opportunity on the he talks about the aircraft piece and how, you know, it’s important that we maintain FedEx maintains this modern fleet. Mhmm. So, yeah, I think the fact that your CapEx has come down so much over the last ten years is because FedEx is maintaining that, you know, already has one of the best fleets in the industry.

John Dietrich, CFO, FedEx: So That’s right.

Richard Harnain, DB’s lead transportation analyst, DB: Maybe talk about that more. How do you feel about the fleet today, and where can it be optimized?

John Dietrich, CFO, FedEx: Yeah. I you know, thank you for that. The tension that the aircraft investment received in prior years, I understand. But the triple seven is the best airplane out there for what we do. And, the company, I think, was very bold and and had the foresight to invest in as many as we did.

Now I think we’re at a point where we were able to take advantage of that investment and kind of harvest those investments. You know, of course, we’ll need to look to the future for the ultimate retirement of our MD elevens. Those are getting older, more expensive to operate, so we’ll be doing that. We’ll be looking at our ground excuse me, our domestic fleet as well. I think there’s opportunity to further compress the size of our fleet when we look at, you know, our seven five sevens and our eight three hundreds that we operate here domestically.

We’ve done some of that already. I I think we’ve we’ve kind of retired roughly 29, 30 airplanes in that neighborhood over the last two years, maybe even more. And I’m focused on that as well. That said, you know, as new equipment opportunities come up, we’re gonna be closely scrutinizing it. Don’t necessarily always have to buy new.

Although those give great returns, we have strong balance sheets, so we get them for a reasonable price. We have buying power as FedEx as you’d expect, one of the largest fleets in the world. So we take advantage of that, but, look forward to keeping you posted on the fleet expansion and or contraction as we go forward. Nice.

Richard Harnain, DB’s lead transportation analyst, DB: Alright. Well, thank you so much for your time and that great conversation. Everyone found it helpful.

John Dietrich, CFO, FedEx: Great. Thank you, Richard. Appreciate it. Thank you all. Thanks.

Bye.

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