FedEx Corporation (NYSE:FDX) Q3 2023 Earnings Call Transcript

Stephanie Moore: I wanted to touch a bit on, I think, the color provided today and certainly in the Q&A and just what’s going on in the Express segment is very clear and certainly more to come there. I wanted to dig in a little bit about maybe the Ground segment and trying to triangulate what has caused you to raise expectations for the full year? I mean just kind of the Ground is clearly — you’ve made a lot of progress as noted on salary employee benefits down quite a bit, but also purchase transportation down quite a bit. So, as you look at the Ground and particularly the strong performance in the third quarter, can you kind of pinpoint in a little bit more detail what exceeded your original expectations as you look at the full year? Thanks.

Mike Lenz: Okay. Sure. Thanks, Stephanie. Well, it was a number of fronts of the efficiency side with, again, flexing down the labor hours following peak. We also had a lower surge premium for this peak relative to prior peak. So, that was a consideration as well. But broadly, the focus on utilizing the assets more efficiently and in a lower demand environment, that means certain facilities in that. We closed sorts or smaller transfer points in that. We’ve shut those down. So again, it’s just about optimizing the network across the board. It’s not — there’s no single linchpin to that. And look, it’s very much impressive to see the progress we’ve had here when we’re also facing a headwind there from increased infrastructure costs at Ground, so that represents opportunity going forward as well on top of everything.

Operator: Our next question is from Scott Group of Wolfe.

Scott Group: A couple of things I just want to clarify and then a bigger picture question. So Mike, the — how big was the LTL gain? Your comment about less Ground improvement in Q4. Was that a year-over-year or a sequential comment? And then just bigger picture. What I want to trying to understand is how much of this $4 billion of DRIVE savings are we seeing this year, or — and how much is incremental all starting in fiscal €˜24? And then, how much of the variable reduction should we think come back next year to offset some of that DRIVE?

Mike Lenz: Okay, Scott. So first, for the gain on the sale was roughly about $30 million at the Freight company for the facility there. And then yes, the reference for Ground was that the year-over-year improvement for the fourth quarter, we wouldn’t anticipate it to be as large as what we realized here in the third quarter. So, that’s the two freebies. On your other question, I mean, look, we are holistically adjusting the cost base on all dimensions, all areas. Every dollar is under scrutiny. So, that entails both, the adjustments for reduced volume levels across the board, and you see progress there in a number of the lines, and then gaining traction as we lean into realizing the structural reductions with DRIVE. So, we will look forward to updating further about how the various initiatives are playing out here when we see you on April 5th.

Operator: Our next question is from Brian Ossenbeck of JP Morgan.

Brian Ossenbeck: So, something similar here, Mike. Can you just quantify the impact of weather, given how Express performed? I don’t know if that was large or worth quantifying. And then just to come back to DRIVE one more time, maybe level set expectations, if you could. I think, Raj, you’ve talked about how we’re going to get a lot more granular details and metrics and the work streams. I don’t think we’ve really gotten that much in the past, or at least not that consistently. So, should we expect to get that updated on a regular basis? Are we going to see benchmarks in terms of where you are now and how that’s going to roll out through the various segments in the different work streams? And how should we be thinking about that coming up here in a couple of weeks? Thank you.