FedEx : Fourth Quarter 2024 Earnings Presentation

FedEx Corporation

Fiscal Fourth Quarter 2024 Earnings | June 25, 2024

1

VP of Investor Relations

2

2

1

Forward-Looking Statements and Non-GAAP Financial Measures

Certain statements in this presentation may be considered forward-looking statements, such as statements regarding expected cost savings, the optimization of our network through Network 2.0, future financial targets, business strategies, management's views with respect to future events and financial performance, and the assumptions underlying such expected cost savings, targets, strategies, and statements. Forward-looking statements include those preceded by, followed by or that include the words "will," "may," "could," "would," "should," "believes," "expects," "forecasts," "anticipates," "plans," "estimates," "targets," "projects," "intends" or similar expressions. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from historical experience or from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, economic conditions in the global markets in which we operate; our ability to successfully implement our business strategy and global transformation program and optimize our network through Network 2.0, effectively respond to changes in market dynamics, and achieve the anticipated benefits of such strategies and actions; our ability to achieve our cost reduction initiatives and financial performance goals; the timing and amount of any costs or benefits or any specific outcome, transaction, or change (of which there can be no assurance), or the terms, timing, and structure thereof, related to our global transformation program and other ongoing reviews and initiatives; damage to our reputation or loss of brand equity; our ability to adjust our air network to remove costs related to services currently provided to the U.S. Postal Service ("USPS") under the contract for Federal Express Corporation to provide the USPS domestic transportation services, or a decision by the USPS to terminate the agreement early; our ability to meet our labor and purchased transportation needs while controlling related costs; a significant data breach or other disruption to our technology infrastructure; the impact of a widespread outbreak of an illness or any other communicable disease or public health crises; anti-trade measures and additional changes in international trade policies and relations; the effect of any international conflicts or terrorist activities, including as a result of the current conflicts between Russia and Ukraine and in the Middle East; changes in fuel prices or currency exchange rates, including significant increases in fuel prices as a result of the ongoing conflicts between Russia and Ukraine and in the Middle East and other geopolitical and regulatory developments; our ability to match capacity to shifting volume levels; the effect of intense competition; an increase in self-insurance accruals and expenses; failure to receive or collect expected insurance coverage; our ability to effectively operate, integrate, leverage, and grow acquired businesses and realize the anticipated benefits of acquisitions and other strategic transactions; noncash impairment charges related to our goodwill and certain deferred tax assets; the future rate of e-commerce growth and levels of inventory restocking; passenger airline cargo capacity; evolving or new U.S. domestic or international laws and government regulations, policies, and actions; future guidance, regulations, interpretations, challenges, or judicial decisions related to our tax positions; legal challenges or changes related to service providers contracted to conduct certain linehaul and pickup-and-delivery operations and the drivers providing services on their behalf and the coverage of U.S. employees at Federal Express Corporation under the Railway Labor Act of 1926, as amended; our ability to quickly and effectively restore operations following adverse weather or a localized disaster or disturbance in a key geography; any liability resulting from and the costs of defending against litigation; our ability to achieve our goal of carbon-neutral operations by 2040; and other factors which can be found in FedEx Corp.'s and its subsidiaries' press releases and FedEx Corp.'s filings with the SEC. Any forward- looking statement speaks only as of the date on which it is made. We do not undertake or assume any obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

FedEx reports its financial results in accordance with accounting principles generally accepted in the United States ("GAAP"). We have supplemented the reporting of our financial information determined in accordance with GAAP with certain non-GAAP (or "adjusted") financial measures. Reconciliations of non-GAAP measures used in this presentation to the most directly comparable GAAP measures are included below under "Appendix."

The financial targets and outlook provided herein and discussed during this presentation assume the company's current economic forecast and fuel price expectations, successful
completion of planned stock repurchases, and no additional adverse economic or geopolitical developments. FedEx's earnings per share and ETR forecasts are based on current law
and related regulations and guidance. This presentation should be reviewed in conjunction with our fourth quarter fiscal 2024 earnings release and webcast of the earnings
presentation conference call, which are available on FedEx's website at investors.fedex.com.	3

3

President & CEO

4

4

2

Key messages

• Delivered strong full-year earnings growth despite lower revenue
• Achieved YoY operating profit growth and margin expansion in every quarter of FY24, enabled by DRIVE
• Advanced actions to transform the network … continued rollout of Network 2.0 and finalized the transition to one FedEx
• Expecting momentum to continue in FY25; introducing FY25 adjusted EPS outlook* of $20 to $22

*Non-GAAP financial measure; see appendix for more information

5

5

Q4 and FY24 results overview

Delivered strong adjusted earnings growth* in Q4 and FY24

	Q4 FY24	FY24
Revenue	$22.1B	$87.7B
Adj.	1% YoY	(3)% YoY
$1.9B	$6.2B
operating
income*	6% YoY	16% YoY
Adj.	8.5%	7.1%
operating
margin*	+40 bps	+110 bps
Adj. EPS*	$5.41	$17.80
	10% YoY	19% YoY

Commentary:

• Continued DRIVE execution enabling improved adjusted operating income, margins, and EPS*
• Ground delivered its highest adjusted operating income* in company history for the quarter and the full year
• Strong Q4 performance at Freight drove full-year operating margin equal to last year's all-time high
• Express adjusted operating margin* increased sequentially in Q4

*Non-GAAP financial measure; see appendix for more information

6

6

3

DRIVE is changing the way we work

Achieved target of $1.8B in structural cost-out in FY24

Air Network & Intl.

• Delivered ~$500M in cost savings in FY24
• Savings driven by structural network transformation and reduced flight hours
• Ramping savings in Europe from route optimization, improved sort processes and productivity gains

G&A Savings

• Delivered ~$550M in cost savings in FY24
• Realized procurement savings by centralizing third- party transportation, sort equipment, and outside service contracts
• Delivered value as we are aligning G&A functions globally

Surface Network

• Delivered ~$750M in cost savings in FY24
• Efficiency improvements in Sort, Linehaul, and Pickup & Delivery processes
• Maximizing use of rail
• Freight handling significantly more drayage

7

7

Advancing our network transformation

One FedEx

• Successfully consolidated FedEx Express, FedEx Ground, Services into Federal Express Corporation on June 1, 2024
• New operating structure will help reduce cost, allow teams with speed, and make it easier for team members to manage FedEx careers

Network 2.0

• Continued progress in Q4, including launch in Canada
• In first half FY25, will complete Canada transition and dozens of additional locations in the U.S.
• Expect to significantly pick up the pace into FY26

8

4

Looking ahead

Targeting adjusted EPS* growth of 12% to 24% in FY25

Conducting an assessment of the role of FedEx Freight in value-creation plans

On track for cost savings target of $4B in FY25 compared to

FY23 baseline; expect another $2B to follow from Network 2.0

Focused on lowering capital intensity, improving ROIC*, growing adjusted free cash flow*, and delivering significant returns to stockholders

*Non-GAAP financial measure; see appendix for more information

9

9

EVP & Chief Customer Officer

10

10

5

Transportation segment revenue performance

Revenue inflected positive in the fourth quarter

			0%
	$10.4B		$10.4B
Q4 FY23		Q4 FY24

FedEx Express

• Revenue was flat, with package yield up 2%
• While positive, yield growth was pressured by international export demand surcharge tapering and increasing mix of deferred services

	+2%
$8.30B	$8.49B
Q4 FY23	Q4 FY24
FedEx Ground

• Revenue up on yield and volume growth
• Volume increase driven by Ground Commercial

			+2%
	$2.27B		$2.31B
Q4 FY23		Q4 FY24

FedEx Freight

• Revenue increase driven by higher yield
• Average daily shipments increased slightly

11

11

Monthly volume trends: December 2023 - May 2024

Volumes continue to stabilize

			Q3 average daily volume		Q4 average daily volume
					FedEx Express U.S. Domestic Package YoY
				Dec		Jan	Feb	Mar	Apr	May
						(4)%		(4)%	(1)%		(1)%
		(2)%	(8)%

FedEx Express International Export YoY

	Dec		Jan		Feb	Mar	Apr	May
								9%
	8%		8%			7%	8%
				(2)%

FedEx Ground YoY

FedEx Freight LTL YoY

Dec

Jan

Feb

Mar

Apr

May

Dec

Jan

Feb

Mar

Apr

May

2%	1%	4%	1%				2%	1%
(2)%		(1)%		(3)%	(6)%	(2)%	(2)%

12

12

6

Transportation segment yield performance
Pricing environment remains competitive but rational
		YoY yield by fiscal quarter
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
Q4 FY22	Q1 FY23	Q2 FY23	Q3 FY23	Q4 FY23	Q1 FY24	Q2 FY24	Q3 FY24	Q4 FY24
	FedEx Express International Export	FedEx Express U.S. Domestic	FedEx Ground	FedEx Freight
								13
13

Leading with innovative, data-driven solutions

Healthcare portfolio

• More than $1B of healthcare-related revenue comes from customers who also utilize FedEx Surround
• Surround provides insights to help FedEx customers monitor and solve their supply chain challenges
• Recently opened a European Life Sciences Center, which offers an end-to-end supply chain solution for temperature-sensitive medical storage and transport

E-commerce portfolio

• Recently launched Picture Proof of Delivery (PPOD) APIs and signed several PPOD API pricing agreements with large retailers

14

7

EVP & Chief Financial Officer

15

15

Transportation segment operating income performance

-18%

$519M	$427M
Q4 FY23*	Q4 FY24*

FedEx Express

• Decline driven primarily by lower international yield, partially offset by lower structural costs, higher U.S. domestic package yields

+13%
$1,004M	$1,137M
Q4 FY23	Q4 FY24*
FedEx Ground

• Increase driven by continued progress on DRIVE, higher yield, lower self-insurance costs, and commercial volume growth

+13%

$448M	$506M
Q4 FY23	Q4 FY24

FedEx Freight

• Increase driven by higher yield and effective cost management.

*Non-GAAP financial measure; see appendix for more information

16

16

8

FY25 outlook

	FY25	Commentary:
Revenue	Low-to-midsingle-digit
• Revenue growth driven by improving
percentage growth
		demand trends in U.S. domestic parcel
Adjusted EPS*	$20 - $22	and international export
• Remain committed to aggressively
		managing cost structure to continue to
		improve operating profit, including $2.2
Effective tax rate*	24.5%	billion tied to DRIVE
• Significant headwind from U.S. Postal
		Service is expected to begin in Q2
Capital spend	$5.2B
*Non-GAAP financial measure; prior to mark-to-market retirement plans accounting adjustments, which are impracticable to calculate at this time. See appendix for more information.	17

17

Illustrative operating income bridge based on the midpoint of FY25 adjusted EPS* outlook

$6.2B $0.1B ($0.5B) ($0.4B) ($0.3B) ($0.1B)

$2.2B $7.2B

FY24	Revenue,	USPS	Intl.	Fewer	Variable	DRIVE	FY25E
adjusted	net of	contract	export	operating	comp		adjusted
operating	cost	expiration	yield	days			operating
income*	increases		pressure				income*
*Non-GAAP financial measure; see appendix for more information					18

18

9

Capital allocation priorities

Continuing to reduce capital intensity while increasing capital returns

$6.8B $6.2B

$5.2B $5.2B

	7.2% of	of	6.8% of				of
		6.8% of			5.9% of
	revenue		revenue	revenue
				revenue
	FY22		FY23			FY24		FY25
								forecast

$2.5B	Stock
$3.8B**	repurchases
Dividend
FY25E capital
return $1.3B	($ in billions)

Lowering capital spend

• CapEx of $1.2B in Q4 FY24; achieved FY25 target of less than 6.5% of revenue in FY24
• Planning for lower annual aircraft CapEx; expected to be ~$1B in FY26
• Increased ROIC* from a baseline of 8.7% in FY23 to 9.9% in FY24

Enhancing capital return to stockholders

• Completed $500M accelerated stock repurchase in Q4 FY24
• In FY24, generated $4.1B in adjusted free cash flow*, up $500M YoY
• Expect to return $3.8B to stockholders in FY25
• Plan for $2.5B of stock repurchases in FY25, with $1B repurchase expected in Q1
• Recently announced 10% dividend increase for FY25

*Non-GAAP financial measure; see appendix for more information

**Reflects FedEx's share repurchase and dividend expectations for FY25. Each quarterly dividend payment is19 subject to review and approval by our Board of Directors

19

Segment reporting changes beginning FY25

Reflects operating as a more flexible, efficient, and intelligent network as one FedEx

New reportable segments

• Federal Express Corporation, consisting of the former FedEx Express, FedEx Ground, and FedEx Services segments
• FedEx Freight, consisting of the former FedEx Freight segment plus FedEx Custom Critical
• Corporate and Other, unchanged from prior composition

Disclosure plans

• Planning to publish restated results for FY23 and FY24 in revised versions of the Statistical Book and Form 8-K filing in late August 2024
• Will continue to provide service-level volume and yield data detail

20

20

10