FedEx 1Q17 Earnings Call Notes

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FedEx’s (FDX) CEO Frederick Smith on Q1 2017 Results

TNT’s express freight capabilities were a key attraction

“The attraction of TNT was many-fold but I have to tell you that one of the key attractions was their unduplicated express rate network in Europe. And of course Europe is a high density of population and their ability to move these pallets very fast throughout Western Europe was a tremendous advantage.”

Thoughts on effects of autonomous vehicles

” In terms of UAVs in particular, we have five separate, I think it would be not fair to call all of them projects but work streams or projects in both aviation and automated vehicles. The difference with us and a lot of other people we’ll just prefer to keep working those issues and tell you about them when they make a meaningful difference in the company. I will say this much. I think our philosophy and we know a lot about these technologies. After all, our auto pilots in our 777 airplanes are among the most sophisticated robots in the world. They can take off, land the plane and taxi to the gate and turn themselves off if that’s what we chose to do so. But it’s very difficult in the foreseeable future to substitute for the well trained pilot or driver or person. And we look at the use of automation more as an opportunity to improve the productivity of those types of experts within our system to make their job more comfortable and easy and above all to increase safety. So those five work streams are underway. You’ll hear a lot about them I’m confident in the next few years. But important in our philosophy maybe slightly different than a lot of other people that think that right over the horizon, everything is going to be an automated vehicle or some sort of UAV. We think that is unlikely and that this technology like most technologies particularly aviation technology will evolve incrementally over time with a great emphasis on safety first.”

T. Michael Glenn

Moderate growth in the global economy

On the economic front, we see moderate growth in the global economy. Our U.S. GDP growth forecast is 1.6% for calendar ’16, 20 basis points lower than our last forecast in the last quarter and 2.3% for calendar ’17 led by gains in consumer spending. Our global GDP growth forecast is 2.2% for calendar ’16, 10 basis points below last quarter and 2.6% for calendar ’17. We expect industrial production to decline 0.7% in calendar ’16, 10 basis points lower than last quarter and increase 2.2% next year.

Raising rates by 3.9%

” we will be raising rates effective January 2, 2017. FedEx Express rates will increase by an average of 3.9%. Rates for FedEx Ground and FedEx Freight will increase by an average of 4.9%. We will also change the dimensional weight divisor for FedEx Express and FedEx Ground from 166 to 139.”

Shift in peak delivery to Mondays

“Beyond just the dramatic rise in volume, there are several other shifting industry dynamics. Holiday promotions and buying patterns have increasingly shifted which has resulted in heavy demand for package delivery on Mondays during the peak. The intensity for demand on Monday has accelerated in recent years, as more and more retail locations have started serving as fulfillment centers for e-commerce orders. We expect each of the four Mondays during the upcoming peak period to be among the busiest in our company’s history.”

Increased demand for larger and heavier packages

“We have also experienced increased demand for transportation of larger and heavier packages. As e-commerce grows, there is demand for online ordering and delivery of everything from large screen TVs to mattresses and trampolines. We’ve engineered our network’s sortation and delivery capacity for these larger packages, including entire temporary facilities dedicated to the sortation of oversized packages, which will be critically important this upcoming peak season.”

Adding 50,000 seasonal workers

“Across the FedEx portfolio, we expect to once again add more than 50,000 seasonal positions to help the holidays arrive. Based upon growth expectations and network expansion, many of these seasonal team members will have an opportunity for full-time work at FedEx after the holidays.”

Alan Graf

Earning projected at $12.35 in FY 17

“According to our corporate outlook based on the moderate economic forecast that Mike discussed and the momentum we have, we project adjusted earnings to be $11.85 to $12.35 per diluted share for FY ’17, which excludes TNT integration, outlook restructuring costs, TNT intangible asset amortization and year-end mark-to-market pension accounting adjustments.”

David J. Bronczek

TNT’s crown jewel was the best ground network in Europe

Yes, this is Dave again. The jewel in the crown always at TNT was the very best ground road network in all of Europe. It’s great service. They have great people, great cost structure. So with that now in our portfolio around the world, customers have always asked us for a solution for e-commerce to move across the world and mainly into Europe. Now we’ll have that opportunity to do that very successfully. Thank you.