FedEx Corp. Net Income Increases 23% in Third Quarter

FedEx Corporation (NYSE: FDX) today reported earnings of $0.49 per diluted share for the third quarter ended February 28, compared to $0.39 per diluted share a year ago, an increase of 26% year-over-year. Loss of revenue and increased expenses resulting from severe winter storms during the quarter negatively impacted earnings by an estimated $0.04 per diluted share.

FedEx Corp. reported the following consolidated results for the third quarter:

Revenue of $5.55 billion, up 10% from $5.02 billion the previous year
Operating income of $269 million, up 14% from $237 million a year ago
Net income of $147 million, up 23% from last year's $120 million

Total average daily package volume at FedEx Express and FedEx Ground grew a combined 9% year-over-year for the quarter. FedEx Ground continued its strong growth momentum, as its volume grew 24%, while FedEx Express package volume grew slightly.

"Our diverse portfolio of services has enabled us to manage well through difficult economic conditions, as evidenced by our solid year-over-year improvement in earnings," said Alan B. Graf, Jr., executive vice president and chief financial officer. "Our strong momentum should continue into the fourth quarter where we again expect significant year-over-year improvement with earnings in the range of $0.88 to $0.95 per diluted share."

Although not required, the company contributed an additional $815 million to its U.S. domestic pension plans during the third quarter, resulting in total contributions in excess of $1 billion for the fiscal year. These additional contributions were made to fully fund the accumulated benefit obligations of the company's qualified U.S. pension plans at the February 28, 2003 measurement date. Nonetheless, the company expects to continue to generate positive cash flow in both fiscal 2003 and fiscal 2004. The company's outlook for fiscal 2003 capital expenditures has been further reduced to $1.6 billion.

On February 19, 2003, the company announced to its employees a new pension plan option, the FedEx Portable Pension Account. All eligible employees as of May 31, 2003 can choose between accruing future benefits under either the current Traditional Pension Benefit or the new FedEx Portable Pension Account. Employees will retain all benefits previously accrued, regardless of their pension option choice. New employees as of June 1, 2003 will be enrolled in the FedEx Portable Pension Account. The new pension option will provide employees with greater flexibility and help FedEx attract new talent, while allowing the company to better manage its pension expense over the long-term. Pension expense in fiscal 2004 is expected to increase $120 to $150 million year-over-year.

During the quarter, the company acquired 425,000 FedEx shares under its share repurchase programs. A total of 4.95 million shares remain under the existing share repurchase authorization.

For the second consecutive year, FedEx ranked 8th on Fortune magazine's "America's Most Admired Companies" annual survey and in the top ten of Fortune magazine's "World's Most Admired Companies" list. FedEx also ranked highest in J.D. Power and Associates 2002 Small Package Delivery Service Business Customer Satisfaction StudySM in the categories of air, ground and international delivery services.

FedEx Express

For the third quarter, FedEx Express reported:

Revenue of $4.06 billion, up 8% from last year's $3.78 billion
Operating income of $133 million, down 8% from $145 million a year ago

FedEx International Priority® (IP) average daily package volume grew 8% in the third quarter, again led by exports from Asia where volume increased 18% year-over-year. FedEx IP package yield grew 7% for the quarter, primarily due to exchange rate differences, increased fuel surcharges and growth in higher-yielding lanes. U.S. domestic express average daily package volume declined less than 1% during the quarter. U.S. domestic express package yield for the quarter improved more than 3% due to higher fuel surcharges and an increase in base rates.

FedEx Express year-over-year comparisons benefited from one additional operating day in this year's third quarter. Despite the additional day, operating margin declined from 3.8% last year to 3.3% this year, mainly due to increases in salaries and employee benefits and maintenance. Operating margin was also impacted by reduced revenue and increased expenses resulting from severe winter storms during the quarter. Increased fuel surcharge revenue offset a substantial share of higher fuel prices. The growth in salaries and employee benefits is expected to slow in the fourth quarter due to reduced wage increases and improved productivity, while maintenance expenses are expected to be similar to last year's levels.

FedEx Express recently entered into the third addendum to the transportation agreement with the U.S. Postal Service, allowing the company to continue carrying incremental pounds of mail through May 29, 2004 at higher committed volumes than required under the original agreement.

FedEx Ground

For the third quarter, FedEx Ground reported:

Revenue of $844 million, up 26% from last year's $668 million
Operating income of $109 million, up 58% from $69 million a year ago

FedEx Ground average daily package volume grew 24% in the third quarter, about a third of which was attributable to FedEx Home Delivery. Yield per package increased 2%. Operating margin improved to 12.9% for the quarter, compared to 10.3% a year ago, due to continued strong revenue growth, excellent productivity and outstanding cost management.

Volumes continue to grow at FedEx Home Delivery where approximately 34,000 shippers now use FedEx Home Delivery, more than double the number from a year ago. Customer satisfaction for this unique service remains high as evidenced by the strong growth in shippers and volume.

FedEx Freight

For the third quarter, FedEx Freight reported:

Revenue of $493 million, up 12% from last year's $440 million
Operating income of $26 million, up 30% from $20 million a year ago

FedEx Freight average daily shipments for the quarter were flat year-over-year, reflecting the impact of severe winter weather, while yield increased 10% due to general rate increases, higher fuel surcharge revenues and additional volume from its premium longer-haul EZ Flyer service. Third quarter results included $2 million in

rebranding expenses and the effect of an additional operating day. Despite the additional rebranding expenses, the FedEx Freight operating margin was 5.3% in the third quarter, compared with a 4.4% operating margin a year ago.

FedEx Freight has further reduced transit times in a number of regions across the U.S. in a continuing focus on fast-cycle distribution, thereby making the company even more competitive in the regional less-than-truckload market. Currently, nearly 90% of FedEx Freight shipments are delivered next- or second-business-day. The reduced transit times will give customers more service benefits and at the same time improve the operating efficiency of FedEx Freight.

Corporate Overview

With annual revenues of $22 billion, FedEx Corp. is the premier global provider of transportation, e-commerce and supply chain management services. The company offers integrated business solutions through a network of subsidiaries operating independently, including: FedEx Express, the world's largest express transportation company; FedEx Ground, North America's second largest provider of small-package ground delivery service; FedEx Freight, the largest U.S. provider of regional less- than-truckload freight services; FedEx Custom Critical, North America's largest provider of expedited time-critical shipments; and FedEx Trade Networks, a provider of customs clearance, international freight forwarding and trade facilitation.

Additional information and operating data are contained in the company's annual report, Form 10-K, Form 10-Qs and third quarter FY2003 Statistical Book. These materials, as well as a Webcast of the earnings release conference call to be held at 8:30 a.m. EST on March 19, are available on the company's Web site at www.fedex.com/us/investorrelations. A replay of the conference call Webcast will be posted on our Web site following the call.

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, any impacts on the company's business resulting from the timing, speed and magnitude of the U.S. domestic economic recovery, new U.S. domestic or international government regulation, the impact from any terrorist activities or international conflicts, including military action in Iraq, the impact of rising fuel prices, our ability to match capacity to shifting volume levels, the timing and amount of any money that FedEx is entitled to receive under the Air Transportation Safety and System Stabilization Act and other factors which can be found in FedEx Corp.'s and its subsidiaries' press releases and filings with the SEC.