Raj Subramaniam: So, we are very confident in the future potential for Express. I think if you look at the — I mean, you got to take a step back and look at the vagaries of the global supply chain over the last few years. And we have — the pandemic was one of those biggest supply chain bullwhip effects we have seen in the last 30 or 40 years and we are in the aftermath of that. We have seen now multiple quarters of the market being down. So, here we are in a situation where we are growing faster than the market and yet the overall demand environment is weak for our sector. So, the structural changes that we are putting into the Express network are real and they are actually designed to improve our profitability and return on invested capital.
I’m very confident that the margins in Express will return and the structural cost takeout that’s continuing to take place, it will serve us very well, and especially as the demand profile returns, it’s going to be an — it’s going be very good opportunity for FedEx in the future.
Operator: The next question will come from Conor Cunningham with Melius Research.
Conor Cunningham: Hi, everyone. Thank you. Just quickly, does the pilot contract — does the lack of pilot contract, I don’t know what you can do it just in terms of pulling out Express costs? And then on Network 2.0, I think in the past, you’ve talked about how you’re testing that in certain markets, just curious on how those markets have performed relative to the expectations. Thank you.
John Dietrich: So, I’ll touch on the pilot piece, if I understood your question. Look, part — most of what we’re doing here is to increase the utilization of our assets and leverage the Purple network. So, the pilot contract allows for flex up and flex down, but where we are now is looking to take full advantage of the assets that we have. So, there, we’ll work within the agreement constraints. But we have a fair amount of flexibility to execute Tricolor and our other initiatives here. I’m sorry, I’m not sure I caught the full part of the second part of your question. On Network 2.0, if that’s your question. I think this fits in quite well. There is no constraints. We’re talking about on the pilot side on Network 2.0. In fact, it’s complementary from my perspective.
Operator: Your next question will come from Allison Poliniak with Wells Fargo. Please go ahead.
Allison Poliniak-Cusic: Looking at Purple today, just how much of that volume that’s going on a Purple Tails today that could go on White, as an example? And if there is any context that you can provide in terms of the relative cost savings there? Thanks.
Raj Subramaniam: Hey, Allison, we didn’t hear the first part of your questions. Could you please repeat it?
Allison Poliniak-Cusic: Sure. Just trying to understand in terms of the volume impact from Tricolor, how much that’s going on, say, a Purple Tail today that could eventually go on White, and sort of what the cost impact would be to FedEx by doing that.
Raj Subramaniam: So — and just to answer that question, well, I think one of the things that you’ll remember is that, we’ve — a lot of the growth that’s happening in the International space is in — is happening in the deferred space, in the Air freight space and also e-commerce. So, whether — as a future market evolves, this is the right design for us to be able to serve each part of the market with the right network in place. Now, how much, where it’s going to fit in, that’s yet to be determined as the market evolves. But again, what we are designing for is the right network for the right kind of traffic so we have an opportunity to be able to grow profitably in the International space.
Operator: Your next question will come from Amit Mehrotra with Deutsche Bank. Please go ahead.
Amit Mehrotra: Thanks, operator. Hi, everybody. I guess, I just want to come back to I think Chris Wetherbee’s question, and talk about — I mean, typically, John, we see Express profits go down, I don’t know, about 50% sequentially from 2Q to 3Q. Obviously, 2Q is not what we wanted it to be, but any sense of seasonality, normal seasonality, or are we — is it that type of magnitude relative to where we are in the second quarter? And then just related to that, I’m having a little bit of a hard time or really a lot of hard time understanding, sequentially, revenue was up in Express, packages were up, composite yield was up, DRIVE savings were up, but then profits were down. So, maybe you can dumb it down for me, but I really don’t understand why profit would be down sequentially when all those pieces of mix and revenue were up sequentially. Thank you.
John Dietrich: So, I’ll start with the discussion on Q3 or not going to be giving Q3 guidance. But as I said, I think it’s reasonable to expect that typical seasonality will apply, I will say for Q3 in particular, due to FedEx Ground’s very strong performance in last year’s third quarter. With Ground operating margin inflecting positive by 240 basis points versus the prior year, we’ll have a more difficult comparison. But I think it’s fair to say, seasonality will play a role. Now with regard to the Express margins and the profits, we’re going to continue to be laser-focused on that. As I said, our cost structure did not anticipate the higher demand. You cannot underestimate the impacts of all the things that Raj and Brie talked about.
If you look to the year-over-year decline in the US Postal Service volume, combined with some of the minimum service requirements that are required, that really has a drag on your cost. And what I will say too is, we’re really well-positioned when volumes return in light of all the initiatives we’re taking right now.
Operator: The next question will come from Jon Chappell with Evercore ISI. Please go ahead.
