FedEx : Second Quarter 2025 Transcript

Published: 2025-01-14 16:42:08 ET FDX

FedEx Q2 FY25 Earnings Call Transcript - December 19, 2024

Jenifer Hollander

Vice President-Investor Relations, FedEx Corp.

Good afternoon and welcome to FedEx Corporation's second quarter earnings conference call. The second quarter earnings release, Freight assessment results release, Form 10-Q, and stat book are on our website at investors.fedex.com. This call and the accompanying slides are being streamed from our website.

During our Q&A session, callers will be limited to one question to allow us to accommodate all those who would like to participate. Certain statements in this conference call may be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For additional information on these factors, please refer to our press releases and filings with the SEC.

Today's presentation also includes certain non-GAAP financial measures. Please refer to the Investor Relations portion of our website at fedex.com for a reconciliation of the non-GAAP financial measures discussed on this call to the most directly comparable GAAP measures.

Joining us on the call today are Raj Subramaniam, President and CEO; Brie Carere, Executive Vice President and Chief Customer Officer; and John Dietrich, Executive Vice President and CFO.

Now, I will turn the call over to Raj.

Rajesh Subramaniam

President, Chief Executive Officer & Director, FedEx Corp.

Thanks, Jeni. We are in the home stretch of peak and I want to begin by thanking our team members for their hard work and dedication as we deliver an outstanding holiday season for our customers.

Today marks an important step in our transformation. Following our assessment of FedEx Freight, which we announced and commenced back in June, we have decided to pursue a full separation of this business, which will result in two industry-leading public companies.

Through the separation, we believe we will unlock significant value for stockholders, while allowing for continued commercial, operational, and technological cooperation between both businesses.

The separation will also enable both companies to benefit from enhanced focus and competitiveness. For FedEx, this will ensure strong execution of our near and longer term strategic priorities, while preserving the benefits Freight and FedEx enjoy from their long-standing connectivity. Each independent company will be well-capitalized with flexibility to invest in profitable growth, while continuing to return capital to shareholders.

I would like to provide a brief overview on the compelling value proposition of both businesses, starting with FedEx Freight. We're excited to create a leading LTL pure-play, the largest carrier by revenue with the broadest network and the fastest transit times.

FedEx Freight has deep relationships with customers who turn to us for our reliability, simplicity, and choice of services. Freight has maintained its leading market share position for a long time and increased operating profit nearly 25% on average per year over the last five years, expanding operating margin by approximately 1,100 basis points. The team's focus on safety, facility utilization, revenue quality and operational efficiency has driven this performance, and these factors will continue to guide Freight's go-forward strategy supported by a strong balance sheet.

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As a separate company, Freight will be better positioned to unlock its full value potential. Areas where we see the greatest opportunity include, first, an expanded dedicated LTL sales force led by Tom Connolly, our new VP of LTL sales, with nearly 30 years of experience. We've already begun to build out this team and we expect to add more than 300 LTL specialists by the time of separation.

Second, an enhanced LTL specific pricing and invoicing system that drives faster speed to market, more intuitive contracts and is more tailored to this particular market. Third, improved Freight and FedEx network efficiencies focused on accelerating speed, improving coverage, optimizing touches and lowering our cost to serve. And fourth, an LTL-focused automation, which will drive efficiency and reduce outside vendor spend.

FedEx Freight's portfolio of solutions, which includes both priority and economy services, is also well positioned to benefit from the long-term market dynamics shaping the LTL industry. As we pursue the separation, we will remain focused on customer experience by sustaining or improving service to our customers. To ensure the focus and seamless transition, Lance Moll will continue serve as President of FedEx Freight as we execute on our separation. The long-standing cooperation between FedEx and FedEx Freight will continue through commercial, operational and data and technology agreements to enable seamless continuity of service and capture existing benefits from the relationship.

We have an unmatched customer value proposition. With two separate companies, we will ensure commercial collaboration that creates a seamless transition for our customers, especially those that turn to FedEx for all three services. From an operational perspective, in addition to the network efficiencies I mentioned earlier, Freight will continue to provide line haul for FedEx strategically including Tricolor, peak season and drayage support. This requires minimal change as Freight already receives a direct financial benefit from supporting Federal Express via intercompany agreements.

Additionally, we will implement shared technology and service agreements to facilitate the transition and beyond. Through these agreements, FedEx will provide Freight with tech platforms that effectively connect the two businesses as needed and ensure business continuity. Given the strong reputation and familiarity of our brand, we plan for the new company to continue to operate under the FedEx Freight name.

Putting all of this together, customers will continue to enjoy the superior service, speed and coverage they have come to expect from FedEx Freight, while also maintaining access to the unparalleled global ecosystem of FedEx Services.

Now turning to FedEx. We pioneered the express transportation industry over 50 years ago and remain the industry leader today. Customers choose us for our advantaged value proposition enabled by our service, speed and breadth of coverage.

We deliver nearly 17 million packages each business day to over 220 countries and territories. We link more than 99% of the world's GDP. We transport approximately $2 trillion worth of goods every year, by connecting 3 million shippers to 225 million consumers.

In the US, our weekend and rural coverage also serve as competitive advantage. And we generate over 1 petabyte of data every single day, which provide insights that drive how we run our company more efficiently, how we serve our customers and how our customers manage their own supply chains.

The ongoing progress at FedEx gives me confidence that this standalone business will continue to thrive into the future. During and post-separation, we will continue to focus on delivering significant value to stockholders through our strategic initiatives which are cementing our leadership position as the world's best transportation and supply chain technology company.

This includes DRIVE, which continues to change the way we work. We are on track to deliver $4 billion in savings by the end of FY 2025 versus the FY 2023 baseline. Network 2.0, which will deliver on the promise of a more efficient network,

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including one truck, one neighborhood, along with consolidated facilities where we are targeting $2 billion in savings by the end of FY 2027.

Tricolor, the redesign of our global air network, which positions us for strategic growth while improving the efficiency and asset utilization of the entire FedEx system. As a separate company, FedEx will strengthen its leading value proposition with an emphasis on delivering outstanding service, continuing to provide a differentiated offering in premium segments and remaining focused on higher-yielding service and building on our technology ecosystem to create smarter supply chains for all.

Our capital allocation priorities remain unchanged. We will prioritize maintaining a strong balance sheet and investment- grade profile. We will continue to make high return investments in the business, while reducing capital intensity and increasing stockholder returns through buybacks and dividends.

Looking ahead, we expect to execute the separation within approximately 18 months. Claude Russ will lead our separation management office, bringing the DRIVE rigor and the accountability that we use to run our operations. Claude has spent nearly 25 years at FedEx. As the former CFO of FedEx Freight, he is well versed in our Freight business and the LTL market dynamics. Claude is currently Enterprise VP of Finance and has been a critical enabler of our DRIVE execution.

Today, we have shared the outcome of the assessment in our initial plans. As we have new details and separation milestones to share, we will keep you updated.

Upon completion, this full separation will result in two strong, well-capitalized industry leaders. FedEx Freight, which will benefit from continued strategic and operational competitiveness and more flexible capital allocation.

And FedEx, well positioned to continue executing on our strategic initiatives in pursuit of sustainable, profitable growth.

We are confident the separation is the right strategic decision for FedEx and FedEx Freight at this point in our evolution with a clear path ahead to create significant long-term stockholder value. Importantly, for our employees and our customers, it's business as usual as we look forward to a seamless transition. We are used to navigating change, and we will do it while continuing to deliver on the Purple Promise every single day.

Now, turning to our Q2 results. Looking across the enterprise, we delivered sequential improvement, both in DRIVE savings and adjusted operating profit. At Federal Express Corporation, we achieved strong results on a year-over-year basis and greater flow-through to the bottom line, with adjusted operating profit up 13% on essentially flat revenue.

We did this despite the challenging demand environment, as well as headwinds we have previously identified, including the U.S. Postal Service contract expiration and the timing shift of Cyber Week. This is evidence that our transformation is clearly working.

Similar to last quarter, we experienced weakness in the industrial economy, which negatively affected our B2B volumes, particularly in the US domestic package and the LTL markets. Continued market pressure, coupled with difficult year-over- year comparisons, weighed on our Freight segment in the second quarter. With B2B revenues comprising nearly 60% of our package business and 90% of our LTL business, we are well positioned for profitable growth when the industrial economy recovers.

Against this backdrop and in support of evolving market dynamics, we continue to create a more flexible, efficient and intelligent FedEx as we deliver for our customers. We achieved DRIVE savings of $540 million in Q2. We remain confident that we will deliver our targeted $2.2 billion in incremental savings in FY 2025.

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Our Network 2.0 rollout continued, and the Canadian market integration will be largely complete in early calendar year 2025. With the expiration of the U.S. Postal Service contract, we are strategically matching capacity with demand and flexing the network as needed to transport packages more efficiently.

At the end of September, we reduced our US domestic daytime flight hours by nearly 60% and swiftly began to reduce other associated costs. And we delivered solid service for our customers. This is always our priority and especially important during peak. I'm very pleased with how our teams are navigating a condensed period between Thanksgiving and Christmas. So far during peak, they are delivering more packages per day on average while maintaining the high- quality shipping experience that our customers expect, with the ground average time in transit at two days in the US this peak.

As we look to the second half of the fiscal year, we remain focused on what is within our control, executing against our transformation initiatives to reduce our cost to serve and drive improved performance. However, amid continued uncertainty around the demand environment, we are updating our expectations for FY 2025. We now expect an adjusted EPS outlook range of $19 to $20. John will provide more color on the underlying assumptions shortly.

Turning to DRIVE. On past earnings calls, I've talked about DRIVE as our structural cost optimization program. The reality is that, within FedEx, DRIVE has evolved to be so much more. It's a new data and technology-driven business architecture that has changed how we work across our entire enterprise, introducing more rigor and accountability to every decision we make, leading to a continuous cycle of efficiency and optimization.

Take Europe, where we expect to achieve $600 million in total DRIVE savings by the end of the fiscal year. Our European business is predominantly a ground-based business. We introduced new European leadership over the summer, including a senior operator from our US surface team.

In the spirit of One FedEx, we are bringing hub and sort best practices from US to Europe, and we have achieved many recent wins. Our progress includes revenue growth, which, combined with the DRIVE benefits, lead to improved performance this quarter. This gives us confidence in Europe's near and longer-term trajectory.

Our ability to enhance the financial performance of our European business starts with technology. Having implemented a common data platform, we now have a better view of our European network, assets and cost to serve, using these insights to increase efficiency in the region.

For example, with our improved routing in Europe via the enhanced data flow, we reduced the number of touches on intra- European packages. This is not only improving productivity, but also expediting clearance, leading to better service. We also introduced dimensional pricing at our Charles de Gaulle hub in Paris. This enhancement, enabled by new and updated technology, seamlessly captures package dimensions and weight and then applies and integrates applicable surcharges via standardized processes. As a result, we are now better and more accurately compensated for the goods we transport, especially for the higher-margin packages with unique dimensions. We'll continue to roll out this capability to other European facilities over the next year.

Together with non-stackable shipment surcharges, we expect this initiative to deliver an operating income benefit of over $50 million in FY 2025. This is a prime example of our new business architecture translating into improved financial and operational outcomes.

Looking ahead across Europe, the team remains focused on deploying the right value proposition and network design, the digital tools that enhance the customer experience and the right processes to deliver this experience efficiently and effectively. Improving our financial performance in Europe is a top priority for our entire leadership team. I'm very encouraged by our recent progress and I'm confident in the opportunity ahead.

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In October, just in time for peak, we celebrated the grand opening of a new state-of-the-art sorting facility at our Memphis World Hub. This new sorting facility marks an important milestone in our modernization efforts, improving the work experience for our employees and service for our customers while increasing the efficiency of our hub. We also continue to roll out Network 2.0 in select markets in the first half of Q2, and we have now optimized 200 stations to-date. And we are continuing to execute on Tricolor, our international air network design strategy, which is improving density and asset utilization across the enterprise, while targeting profitable growth.

Before I close, I want to thank the FedEx team once again as we approach the end of our peak season. They make every FedEx experience outstanding positioning us well through peak and beyond.

Now, let me turn the call over to Brie.

Brie A. Carere

Chief Customer Officer & Executive Vice President, FedEx Corp.

Thank you, Raj. Market conditions remain soft, but our solid service levels, unique value proposition, and innovative offerings supported our Q2 performance and have positioned us well for a successful peak season.

Consolidated revenue declined 1% in the quarter, driven by the weak industrial economy. US manufacturing PMI has indicated a contraction for 24 out of the past 25 months, representing the second longest downturn in US history.

Reviewing each segment on a year-over-year basis now. At Federal Express, revenue was essentially flat. Higher yields across our services were partially offset by volumes, which declined year-over-year.

We again saw increased demand for our lower-yielding services. Some of this demand increase was driven by a shift in customer preferences, particularly with the shift from home delivery to ground economy, but the majority was due to organic demand and not related to trade-down between services.

At FedEx Freight, lower volumes, fuel surcharges, and weight per shipment drove the top line decline. Year-over-year comparisons were challenging as some customers won last year from the Yellow bankruptcy have since left in search of lower prices. That being said, we are ready to capture additional profitable volume when the market returns.

Turning now to volume trends by service during the quarter. Volumes were pressured, led by weakness in the US domestic market, partially offset by strong international growth. Across US domestic express services, volumes declined 1%, primarily due to weakness in the industrial economy. Ground volumes were down 1% as well, with the soft B2B environment weighing on ground commercial growth.

While we recognize that e-commerce will continue to outpace B2B growth in the years ahead, we know that the priority customer base is stable with low rates of churn, and the current priority volume weakness reflects the state of the broader global macroeconomic environment.

Ground residential volumes were adversely affected by a difficult comparison due to Cyber Week, which occurred in Q2 last year and is in Q3 this year. International export package volumes increased 9% in the quarter, driven by international economy, which is largely consistent with recent quarterly trends.

Within FEC, average daily pounds were up 10% for international priority freight and 5% for international economy freight. This signals early progress from our Tricolor strategy to drive profitable growth in the global air freight market.

At FedEx Freight, the soft industrial economy led to weakness in both weight per shipment, down 3%, and average daily shipments, down 8%.

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The pricing environment is competitive, but I'm encouraged that revenue quality actions are gaining traction. Revenue quality remains our highest priority as we ensure that revenue growth is benefiting the bottom line.

At Federal Express, composite package yield increased 1%, driven by international priority, US priority, home delivery, and ground commercial. Overall yield for ground services was flat, with yield growth at home delivery and ground commercial offset by ground economy. As expected, international economy parcel yield declined due to mix and lower weight per shipment.

Moving to Federal Express Freight. Composite freight yield was up 4%, driven by lower Postal Service volumes tied to the contract expiration and also successful commercial execution in the international export freight market.

At FedEx Freight, revenue per shipment was down 4%, driven by decreased fuel surcharge revenue due to lower fuel prices and lower weight per shipment.

We are through a significant part of peak and project the demand surcharge revenue over this season will be up year- over-year. I am confident that this pricing strategy is supporting the revenue and profit expectations for the third quarter.

Looking at the second half of fiscal year 2025, we anticipate consolidated revenue to be up slightly on a year-over-year basis in both Q3 and Q4. While we still have five days to go, I'm very pleased with December volumes, which are ahead of our forecast. We expect our general rate increase of 5.9%, which goes live in January, to have a very strong capture.

Federal Express revenue growth in the back half will be supported by ground residential and international economy volume growth, driven in Asia and also through European market share acquisition. We continue to see strong commercial traction, particularly in Europe.

At FedEx Freight, we anticipate revenue to decline slightly in the second half due to continued softness in average daily shipments and modest yield improvement. As Raj mentioned, in January, we began hiring 300 incremental LTL specialists. We believe this increased focus will provide better support for our customers and enable us to accelerate profitable growth.

As we wrap up the calendar year, it's a great time to remind you of our commercial strategy. I am proud to lead the best team in the industry, and I'm confident that the commercial strategy we have in place will drive significant value in the years ahead.

Our strategy is in service of our vision to make supply chains smarter for everyone. For our customers, our mission is to be their unrivaled partner in moving their business forward. To deliver on this mission, we will provide a superior digital portfolio and customer experience. It's essentially the Purple Promise 2.0 powered by the fdx platform.

In fiscal year 2026, we will begin the transition of our fedex.com customer base to the fdx platform. This will improve our speed to market and allow us to expose new capabilities like advanced visibility for the millions of FedEx small and medium customers.

We are designing new experiences for high-value segments and planning for above-market growth we already have a differentiated portfolio. Our target segments are B2B for both healthcare and automotive, domestic e-commerce, global air freight, and of course, Europe.

First, B2B, we have experienced tremendous success in healthcare, which has been our priority B2B vertical. Federal Express already has a double-digit percentage of our revenue in the fast-growing $70-billion healthcare segment and this segment is an important contributor to FedEx profit today.

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This fiscal year, we expect to gain market share in the US by leveraging our unique portfolio, including cold chain support, our new quality management program, and FedEx Surround monitoring and intervention.

While most of our healthcare revenue is US-based, the international healthcare market represents significant opportunity. We will globalize our portfolio and accelerate revenue growth outside of the United States.

Automotive is also a massive market and we are focused on what we estimate to be a $10-billion market within this industry that requires premium services critical to automotive supply chains. We have created an automotive vertical and expect to provide new benefit in early fiscal year 2026.

Our second priority is the US domestic e-commerce market. E-commerce will continue to drive 90% of the market's incremental parcel growth in the years ahead. Within our US ground services, our superior speed and coverage give FedEx a competitive advantage, not to mention Picture Proof of Delivery, which continues to help us close new business. As we execute on Network 2.0, we will continue to lower our cost to serve, which will lead to improved incremental flow- through from these volumes.

Our third target segment is the global air freight market. This is a market with significant potential. We currently have a low single-digit market share in the $80-billion air freight market.

International priority freight already serves as a profit driver for us. Our Tricolor strategy is a necessary condition to competing and winning in this market. Commercially, we've also made numerous changes to improve our performance. We have created a dedicated sales organization, a new customer service model, and are investing in the digital experience. The air freight market is fragmented, and the shipping processes are antiquated. It's a market ripe for disruption.

Fourth is Europe. The European parcel market is roughly $130 billion and will continue to grow in the years ahead. Our mix of revenue in Europe is already favorable, with the majority coming from B2B.

As Raj mentioned, Q2 revenue in Europe grew nicely with strong execution. DRIVE continues to transform our cost to serve and improved service on the continent while enabling us to lean into the most attractive parts of the market.

Regardless of the target segment, revenue quality and capacity management are critical to growing profitably. We have made tremendous progress in yield capture in the last several years. A great example, total non-standard surcharges are generating a significant year-over-year benefit of over $180 million annualized. This is the result of a new AI image capture process.

In calendar year 2025, we will accelerate our work on an end-to-end capacity management system. Within fdx, there is a digital twin of the network. We now have real-time view of the network capacity globally. We will use AI in our digital quote platform to profitably [indiscernible] (00:30:03) at a scale and pace that was previously not feasible.

I am very confident about the future as we lean into these commercial priorities. I am proud to be part of the best team in the industry and extend my sincere thank you to the team members as they deliver for our customers this peak season.

And with that, I'll turn it over to John.

John W. Dietrich

Executive Vice President & CFO, FedEx Corp.

Thank you, Brie. Despite soft market conditions, our Q2 performance demonstrates the team's strong commercial execution and actions to lower our cost to serve. We sequentially grew adjusted operating profit by approximately $170

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million and increased our adjusted earnings per share year-over-year, with the growth driven primarily by our Federal Express segment. And we achieved these results despite revenue declining 1%.

Walking through the dynamics of the quarter, the soft global industrial economy, coupled with the competitive pricing environment, constrained our results. The Postal Service contract expiration negatively affected two months of the quarter, resulting in additional operating profit headwind. However, our plans to remove costs associated with this contract expiration are on track. DRIVE benefits of $540 million offset these headwinds and supported our consolidated year-over- year adjusted earnings growth.

Providing more detail by segment, at Federal Express, we grew adjusted operating income by $146 million year-over-year as a result of DRIVE savings, base yield improvement, and increased international export demand. We achieved this result despite inflationary pressures and several significant headwinds, including the Postal Service contract expiration, a $90-million headwind from the Cyber Week timing shift, and a $20-million headwind from the hurricanes in the southeast US.

As Raj and Brie mentioned, we're pleased that, in Europe, our continued network optimization initiatives and strong execution contributed to the profit improvement at Federal Express, and the ramping of our Tricolor strategy drove higher average daily pounds and yields year-over-year for Federal Express international freight.

In Q2, we decreased total US domestic flight hours 24%, largely due to the 60% reduction in daytime flight hours that Raj mentioned due to the expiration of the Postal Service contract.

At FedEx Freight, while operating profit was down $179 million, approximately $30 million of this decline was due to our lapping the gain on sales of multiple facilities in Q2 of FY 2024. Consistent with the broader LTL market, lower average daily shipments, fuel surcharges, and weight per shipment continued to be a headwind, largely due to the soft industrial backdrop. These pressures were partially offset by cost management and continued base yield growth.

Moving to DRIVE, and as planned, we delivered a sequential improvement in savings in Q2 versus Q1. G&A savings of $210 million in Q2 were a significant lever in the quarter as we continued to optimize our IT and back office functions and reduced outside vendor spend. Surface savings of $150 million benefited the quarter as we continued to maximize third- party rail usage, which lowers our cost to serve on our deferred service offerings. And adding the $180 million from air network and international, we achieved $540 million total savings in the quarter.

As we look to the back half of fiscal 2025, we continue to expect a sequential build in DRIVE savings, and we're encouraged by the trends we're seeing in base yields. However, the global industrial economy continues to constrain demand on our most profitable priority and commercial services.

As a result, we are revising our FY 2025 adjusted diluted EPS outlook to $19 to $20, compared to the prior range of $20 to $21. At the top end of our range, we assume revenue was up a low single-digit percentage, driven by a modest improvement in industrial production, leading to higher flow-through from B2B demand. At the low end of the range, we're assuming a low single-digit decline in revenue due to incremental softness in the industrial economy and the pricing environment.

Regarding our expected earnings cadence for the second half of the fiscal year, at Federal Express, we anticipate Q3 will benefit from ramping DRIVE savings, improved top line flow-through due to the timing of Cyber Week, continued revenue quality actions, and the encouraging peak demand that Brie talked about.

However, as a reminder, the Postal Service headwind is expected to increase in Q3 and will lessen in Q4 as we exit the fiscal year, and the Q3 Postal Service headwind will more than offset the benefit of the Cyber Week timing shift. We continue to anticipate DRIVE savings to build incrementally in Q3 and Q4, with a full-year total of $2.2 billion. At FedEx

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Freight, we expect the continued softness in the US industrial economy and lower fuel prices to pressure op profit for the remainder of FY 2025.

Finally, our fourth quarter is typically our strongest earnings quarter of the year. We expect this dynamic to continue despite having one fewer operating day in Q4.

I'd now like to turn to our latest full-year adjusted operating income bridge, which shows the year-over-year operating profit elements embedded in our revised outlook. This bridge now reflects adjusted operating profit of $6.6 billion, equivalent to $19.50 of adjusted EPS.

For revenue, net of cost, we now expect a $700-million headwind compared to the $100-million FY 2025 headwind assumption we shared last quarter. This reflects both our lower revenue assumptions and continued inflationary pressures.

At the same time, we now forecast a $300-million headwind from international export yield pressure, which is an improvement compared to the prior $500-million estimate. This is a result of execution on our revenue quality initiatives internationally. We still expect about a $300-million headwind from two fewer operating days, one that was in Q1 and one that will be in Q4. And lastly, we anticipate a $500 million headwind from the U.S. Postal Service contract expiration.

We remain confident in our ability to offset these headwinds with the $2.2 billion from incremental DRIVE saving. Further supporting this revised outlook is our continued commitment to revenue quality as evidenced by our calendar year 2025 general rate increase, peak surcharges, and fuel table price changes announced in recent months.

For the full year, we continue to expect year-over-year adjusted operating margin expansion at Federal Express and operating margin contraction at FedEx Freight, given the challenging industrial production environment.

At the midpoint of our revised FY 2025 outlook, we're assuming 9.6% adjusted EPS growth on approximately flat revenue. This expectation further highlights how DRIVE is fundamentally changing the way we do business.

We're improving our cost structure to enable us to profitably grow with e-commerce and are well-positioned to see significant incremental margins on our priority services once global industrial production improves. It remains my highest priority to ensure that we continue to unlock the value that I know exists in our business.

Moving to capital allocation. We remain committed to reducing our capital intensity while increasing our capital returns. In Q2, capital expenditures were approximately $820 million. Our planned FY 2025 CapEx remains $5.2 billion, which is flat on a year-over-year basis, and this will translate into continued strong levels of adjusted free cash flow.

We completed an additional $1 billion in share repurchases in Q2, bringing the year-to-date total to $2 billion, with an additional $500 million of repurchases planned for the fiscal second half.

I remain confident in our near- and long-term ability to grow earnings, while continuing to deliver strong levels of adjusted free cash flow, which will support increased shareholder returns in the years ahead.

And with that, let's open it up for questions.

QUESTION AND ANSWER SECTION

Operator: And the first question will come from Chris Wetherbee with Wells Fargo. Please go ahead.

Chris Wetherbee

Analyst, Wells Fargo

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Okay. Great, thanks. Good afternoon. Maybe I could just hit on the guidance for a moment. So, I think the second quarter results were generally in line with at least what you guys talked about on the last call. So, as we think about the dollar cut coming from the back half of the year, I know, John, you talked about sort of the industrial production outlook and maybe how that's a bit more tempered.

I guess I also wanted to kind of think about LTL or the freight business within that context. It was obviously under some pressure here. I guess maybe if you could help break down the moving pieces of the dollar in a little bit more detail and then also talk about the cadence of how that plays out. Is it a little bit more 3Q-weighted or is it a little bit more 4Q- weighted? Do you think things get better by the time we get to the end of the fiscal year? Just kind of curious how to think about that?

John W. Dietrich

Executive Vice President & CFO, FedEx Corp.

So, thanks, Chris. I appreciate the question. So, as you know, our prior guidance factored in DRIVE savings, as well as the pricing actions that we implemented. However, the expected volumes and related revenue just didn't materialize.

Our updated adjusted EPS range, which is in the $19 to $20, reflects our revised revenue expectations. And from a timing standpoint, and while we're not giving quarterly guidance, I can tell you that Q3 will benefit from ramping DRIVE savings, improved top line flow-through due to the timing of Cyber Week that we talked about, and continued revenue quality actions.

And as Brie talked about, we're seeing encouraging signs from our peak demand. It's important to remember for Q3, though, that the USPS headwind is expected to increase in Q3 and then somewhat less in Q4. But that headwind will more than offset the benefit of the Cyber Week I just mentioned.

We continue to anticipate DRIVE savings to build incrementally in Q3 and Q4. And from a Q4 standpoint, that is traditionally our strongest earnings quarter of the year, and we expect this dynamic to hold. So - and that's true despite even having one fewer operating day. So, hopefully, that give you some more perspective.

Operator: Your next question will come from Ken Hoexter with Bank of America. Please go ahead.

Ken Hoexter

Analyst, BofA Securities, Inc.

Hey, great, and congrats on the Freight spin, obviously, long anticipated and a great move to see in value creation. But my question is, Brie, you talked a little bit about peak season here and how it's shifting into third quarter. Maybe can you give a little bit more color on kind of - you mentioned that peak was strong. Is there anything we can read into that in terms of volumes, ability to get price to flow through? I guess I'm more focused on the volumes, both at ground and express? Thanks.

Brie A. Carere

Chief Customer Officer & Executive Vice President, FedEx Corp.

Yeah. Hey, Ken. Great question. So, from a December perspective, we are pleased. I will say it picked up right after Cyber Monday, it was a very strong week, and we are, from a December perspective, pleased volumes are running ahead of forecast. And as I mentioned, our peak surcharge capture from an absolute dollar amount will be up year-over-year. So, we do think that December's going to be a very strong month.

That being said, I do want to talk about our top line outlook for the back half of the year because we do not necessarily believe that the December performance is going to carry through in the back half. So, as we're thinking about the back-

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Disclaimer

FedEx Corporation published this content on January 14, 2025, and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on January 14, 2025 at 21:41:42.558.