FedEx Corporation First Quarter FY17 Earnings Review September 20, - - PDF document

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FedEx Corporation

First Quarter FY17 Earnings Review September 20, 2016

This presentation supplements, and should be read together with, our earnings release and statistical book for the quarter ended August 31, 2016

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Forward-Looking Statements

Certain statements in this press release may be considered forward-looking statements, such as statements relating to management’s views with respect to future events and financial

• performance. 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 integrate the business and operations of FedEx Express and TNT Express in the expected time frame, a significant data breach or other disruption to our technology infrastructure, changes in fuel prices or currency exchange rates, legal challenges

• r changes related to FedEx Ground’s owner-operators and the drivers providing services on

their behalf, new U.S. domestic or international government regulation, our ability to effectively

• perate, integrate and leverage acquired businesses, disruptions or modifications in service by,
• r changes in the business of, the U.S. Postal Service, the impact from any terrorist activities or

international conflicts, our ability to match capacity to shifting volume levels 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.

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Frederick W. Smith, Chairman, President and CEO Alan B. Graf, Jr., Executive Vice President and CFO

• T. Michael Glenn, President and CEO of FedEx Services

Christine P. Richards, Executive Vice President, General Counsel & Secretary Robert B. Carter, Executive Vice President, FedEx Information Services and CIO David J. Bronczek, President and CEO of FedEx Express Henry J. Maier, President and CEO of FedEx Ground Michael L. Ducker, President and CEO of FedEx Freight

FedEx Executives On the Call

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Frederick W. Smith Chairman, President and CEO

Overview

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Compete Collectively, Operate Independently, Manage Collaboratively FY17 revenue and earnings to increase driven by volume growth and improved base yields at FedEx Express, FedEx Ground, and FedEx Freight TNT Express integration proceeding smoothly Purple Promise, “I will make every FedEx experience outstanding” We are committed to improving FedEx Corporation’s margins, earnings per share, cash flows and returns

Strong Financial and Operating Results

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• T. Michael Glenn

President and CEO FedEx Services

Marketing Review and Outlook

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Expectation for Continued Moderate Global Growth

GDP Forecast* U.S. Global CY2016 1.6% 2.2% CY2017 2.3% 2.6% U.S. Industrial Production* (0.7%) 2.2%

* FedEx Forecast September 2016

Corporation Economic Outlook

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Growing U.S. Domestic Package Volume, Revenue and Yield (Revenue Per Package)

Q1FY17 Q1FY16 Change

U.S. Domestic Package Revenue* $2.98B $2.90B 3% U.S. Domestic Package Average Daily Volume 2.65M 2.62M 1% U.S. Domestic Package Yield* $17.28 $17.03 1%

* Includes fuel surcharge

Express U.S. Domestic

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Continued Growing Demand for Economy Service

Q1FY17 Q1FY16 Change

Int’l Export Package Revenue* $2.02B $2.04B (1%) Int’l Priority Package ADV 385K 389K (1%) Int’l Economy Package ADV 178K 176K 1% Int’l Export Package Yield* $55.15 $55.47 (1%)

* Includes fuel surcharge and exchange rate impact

Express International

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Strong Demand For Residential and Commercial Service

Q1FY17 Q1FY16 Change Segment Revenue* $4.29B $3.83B 12% FedEx Ground Average Daily Package Volume 7.39M 6.72M 10% FedEx Ground Package Yield* $8.09 $7.91 2%

* Includes fuel surcharge

Ground Growth

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Increasing Average Daily LTL Shipments and Segment Revenue

Q1FY17 Q1FY16 Change Segment Revenue* $1.66B $1.60B 4% Average Daily LTL Shipments 105K 97K 8% Weight Per LTL Shipment (lbs) 1,152 1,189 (3%) LTL Revenue Per Shipment* $229.20 $237.81 (4%)

* Includes fuel surcharge

Freight Growth

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Business Trends:

E-Commerce Growth Expected to Deliver Another Record Peak Season

E-commerce market growing at about 15%*, FedEx forecasting record peak volume Volume projected to spread across peak period with multiple peak days Increased investments in people, facilities, aircraft and technology will support outstanding service during peak Close collaboration with large e-tail and retail customers that drive holiday demand

* Source: comScore

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Alan B. Graf, Jr. Executive Vice President and CFO

Financial Review and Outlook

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First Quarter FY2017 Results

Q1FY17 Q1FY17 Q1FY16

As Reported (GAAP) Adjusted (non-GAAP)* As Reported (GAAP)

Earnings Per Share $2.65 $2.90 $2.42 Operating Income $1.26B $1.36B $1.14B Operating Margin 8.6% 9.3% 9.3%

* See the Non-GAAP Appendix for a reconciliation of presented non-GAAP measures to the most directly comparable GAAP measures

Corporation

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Double-Digit Revenue and Operating Income Growth

Q1FY17 Q1FY16 Change Revenue $4.29B $3.83B 12% Operating Income $610M $537M 14% Operating Margin 14.2% 14.0% 0.2 pts

Ground Segment

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Revenue Up 4%

Q1FY17 Q1FY16 Change Revenue $1.66B $1.60B 4% Operating Income $135M $132M 2% Operating Margin 8.1% 8.2% (0.1 pts)

Freight Segment

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Operating Income and Margins Improved

Q1FY17 Q1FY17 Q1FY16

As Reported (GAAP) Adjusted (non-GAAP)* As Reported (GAAP)

Revenue $6.66B $6.66B $6.59B Operating Income $624M $646M $545M YOY Change 14% 19% Operating Margin 9.4% 9.7% 8.3%

* See the Non-GAAP Appendix for a reconciliation of presented non-GAAP measures to the most directly comparable GAAP measures

Express Segment

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New Financial Reporting Structure

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FedEx Express Group =

Segment Segment

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FedEx Express Group FedEx Corporation

FY16 Q1FY17 FY16 Q1FY17

Geography as % of Revenue

FY16 only includes TNT revenue for May 25-31, 2016

56% 44%

U.S. International

44% 56%

U.S. International 76% 24% U.S. International

$26.5B $8.5B $50.4B $14.7B

67% 33% U.S. International

FY16 only includes TNT revenue for May 25-31, 2016

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Global Presence

• More than 200 country and territory destinations served
• Approximately 56,000 team members with 900+ hubs, depots and
• ffice facilities
• Approximately 1 million daily packages
• European road network connecting more than 40 countries

through 19 road hubs and over 540 depots

Overview of

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Strategic Rationale

• Combined companies create an

even stronger global competitor with the leading global express network in the transportation and logistics industry

• Customer access is considerably

enhanced from the combined strength of TNT Express’s strong European road network for both parcel and freight and FedEx Express’s global strength

• Combined companies offer

comprehensive transportation solutions, such as express, global freight forwarding, contract logistics and surface transportation capabilities

• Excellent cultural fit, both companies

focused on service and people

The Acquisition of TNT

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Includes over 200 countries

• Integration process expected to take four years to complete
• Leverages our well-established integration methodology, process and tools
• Focuses on operational efficiencies, service enhancements, and optimization of

back-office functions to strengthen our competitive position

• Supported by 20 integration teams including operations, IT, HR, Finance, Legal,

Sales, Marketing and Customer Service

• Incorporates models to address markets where both TNT Express and FedEx

Express are direct serve, one is direct serve and the other is not, and where both use third-party delivery partners

Multi-Year Integration Process

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First Full Quarter Results

Q1FY17 Operating TNT Express Segment

Income/ (Loss) Margin

Non-GAAP Measure $34M 1.9% TNT Express Integration and Outlook Restructuring Program Costs ($20M) (1.1%) TNT Express Intangible Asset Amortization* ($28M) (1.6%) GAAP Measure ($14M) (0.8%)

* Primarily customer related

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Plan to Realize the Synergies with

Improved Efficiency

• f Staff Functions and

Processes (SG&A) Optimized Pickup and Delivery Operations Grow Revenue With Best-In-Class Service Portfolio Integrated Global Express Network

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FY17 Adjusted EPS*

Excludes mark-to-market pension adjustment, TNT Express integration and Outlook restructuring program costs and TNT Express intangible asset amortization

$11.85 to $12.35 Excluding: TNT Express integration and Outlook restructuring program costs ($275M) TNT Express intangible asset amortization ($115M) FY17 Adjusted EPS*

Excludes mark-to-market pension adjustment

$10.85 to $11.35

* See the Non-GAAP Appendix for a reconciliation of presented non-GAAP measures to the most directly comparable GAAP measures

• Corp. Financial Guidance

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Achieve 10%+ operating margin Increase EPS 10%-15% per year Grow profitable revenue Improve cash flows Increase ROIC Increase returns to shareowners

FedEx Corp. Long-Term Financial Goals

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Strategic Questions?

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Non-GAAP Appendix

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Explanatory Note on Non-GAAP Financial Measures

The company reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP”). In an effort to provide additional, useful information regarding the company’s financial results and other financial information, the company also discusses in its earnings press release and earnings presentation certain non-GAAP

• measures. The rationale for management’s use of this non-GAAP

information is included in the earnings release for the quarter ended August 31, 2016. A reconciliation of any non-GAAP measure used in this earnings presentation to the most directly comparable GAAP measure is included in this Non-GAAP Appendix.

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Op Income Op Margin Income Taxes1 Net Income2 Diluted EPS Non-GAAP measure $1,360 9.3% $457 $780 $2.90 TNT Express integration and Outlook restructuring program costs (68) (0.5%) (23) (45) (0.17) TNT Express intangible asset amortization (28) (0.2%) (7) (21) (0.08) GAAP measure $1,264 8.6% $427 $715 $2.65

Q1 FY17 Reconciliation for FedEx Corp.

Dollars in millions, except EPS

1 Income taxes are based on the company’s approximate statutory tax rates applicable to each transaction 2 Does not sum to total due to rounding

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Operating Income Margin Non-GAAP measure $646 9.7% TNT Express integration costs (22) (0.3%) GAAP measure $624 9.4%

Q1 FY17 Reconciliation for FedEx Express Segment

Dollars in millions

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FY17 Reconciliation for FedEx Corp. Earnings Guidance

Dollars in millions, except EPS

Adjustments Diluted EPS Earnings per diluted share with adjustments $11.85 to $12.35 TNT Express integration and Outlook restructuring program costs ($275) Income tax effect1 92 Net of tax effect ($183) ($0.68) TNT Express intangible asset amortization ($115) Income tax effect1 29 Net of tax effect ($ 86) ($0.32) Earnings per diluted share without adjustments2 $10.85 to $11.35

1 Income taxes are based on the company’s approximate statutory tax rates applicable to each transaction 2 This is a non-GAAP measure because the year-end mark-to-market pension accounting adjustments,

which are impracticable to calculate at this time, are excluded

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