FedEx FY 3Q17 Earnings Call Notes

Fred Smith – Chairman & CEO

DOT should mandate safety tech in fleets

“Let me make an editorial comment based on what Mike said about our reaching 80% of our FedEx Freight having these new modern technologies in the tractors. Similarly, Ground has been providing incentives and soon all of our independent service providers will be required to have these same types of technologies and quite frankly, the Department of Transportation and the Congress should mandate these technologies. It is simply unacceptable to have vehicles on the road that don’t have these modern technologies that can prevent so many accidents that take place historically because of the inability to stop in time or to change lanes precipitously and so forth. So, every truck load carrier in the United States every LTL carry ground parcel, it should all be mandated and we’re trying as hard as we can to push this technology into every vehicle we have as fast as we have, as we possibly can do it.”

The real story is everything behind the mobile phone

“I think there is one more point to make here and that was Allen’s comment a few minutes ago, the vast majority of FedEx business is business to business. 85% plus of our business has nothing to do with e-commerce. So, Amazon is a wonderful company and they certainly have revolutioned the e-commerce world and we’re not sure what Amazon is going to do one way or another. But the FedEx system that consists of thousands of facilities and the ability to pick up transport and deliver it in one to two business days between any two addresses in the United States has been decades in the making and we think that we have a not great risk of being disrupted to use the term and we obviously as Raj and Dave Bronczek and others are putting a lot of effort into making sure that there is no opportunity for somebody to disrupt us on a substantial scale.So, I think again people focus on the e-commerce because everybody looks at this from their mobile phone forward where the real story is everything behind the mobile phone and that’s what FedEx has in enormous quantities; airplanes, trucks, facility, team members. So hopefully that answers your question.”

Dave Bronczek – President & COO

TNT is largest in FDX history

“The TNT acquisition as I’m sure you know is the largest in FedEx’s history and we have discussed this with you previously. This provides extensive benefits to FedEx, including rapidly accelerating our European and global growth around the world, substantially enhancing our global footprint and leveraging TNT’s lower cost road networks in Europe, Middle East and Asia, producing improved results for the entire corporation. Our global integration teams are working to bring TNT and it’s 54,000 employees and their operations across 200 countries and more than one million shipments daily into the FedEx Express system. The integration of TNT and FedEx is on track with significant progress thus far in fiscal 2017.”

Alan Graf – EVP & CFO

E-com is still the smallest piece of our volume

“Allison, a couple more points, the vast majority of the volume that we carry at FedEx Corporation is business to business and while e-commerce is the fastest-growing piece, it’s the smallest piece. And secondarily, as we discussed many times and we can discuss that at infinitum, we can’t afford the same capital intensity for peak e-commerce volume, which is why we have been backing away from some customers and raising our prices significantly. So that balancing act will continue for us going forward.”

Rajesh Subramaniam

Moderate growth in the global economy

“We see moderate growth in the global economy. We expect U.S. GDP growth of 2.3% and CY ’17 driven by robust consumer spending and stronger business investment. Industrial production growth should rebound to 1.5% this year. GDP and industrial production are expected to grow by 2.5% and 2.4% respectively in CY ’18. For the global economy, we forecast growth of 2.6% for CY ’17 and 2.8% for CY ’18.”

Customers want different delivery locations

“First, we recently announced a long-time alliance agreement with Walgreens or FedEx On-Site. FedEx On-Site is a nationwide network of alternate delivery locations, which is a direct response to our customers setting us they want access to more choices for package delivery and drop off. FedEx On-Site locations include some Albertsons and some Kroger grocery stores as well as select Office Depot, OfficeMax and FedEx authorized ship centers. Adding Walgreens will dramatically increase the number of FedEx on-site locations. Walgreens is an ideal partner. They’re well-respected brand with whom we had a long relationship and are well known for their convenient locations. We already started the rollout and expect nearly 8,000 Walgreens locations with FedEx On-Site in time for this year’s peak season.”

Also offering fulfillment for small and medium businesses

“Second, we also announced the launch of FedEx fulfillment in February. This is an e-commerce logistics solution for small and medium-sized businesses. The strength of the FedEx portfolio allowed us to bring to market a fulfillment solution with advanced warehouse management, the latest same-day cut-off times, two-day ground shipping throughout the United States and a seamless return process.”

Amazon is far from being our largest customer

” Let me just say that Amazon is a long-standing customers of ours and while Amazon does deliver a portion of their packages, they still rely heavily on USPS, UPS and FedEx for delivery and it’s definitely worth mentioning that no single customer represents more than 3% of our total revenue and Amazon is far from being our largest customer.”