FedEx Corp. Reports Record Revenue and Earnings; Fourth Quarter Net Income Increases 19 Percent

FedEx Corporation (NYSE: FDX) today reported earnings of $0.92 per diluted share for the quarter ended May 31, compared to $0.78 per diluted share reported last year.

Fourth Quarter Results

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

— Revenue of $5.83 billion, up 8% from $5.42 billion the previous year
— Operating income of $492 million, up 18% from $416 million a year ago
— Net income of $280 million, up 19% from last year's $236 million

Total average daily package volume at FedEx Express and FedEx Ground grew a combined 5% year over year for the quarter, due to continued strong growth at Ground and in international express shipments.

Full Year Results

For the full fiscal year, FedEx Corp. reported earnings of $2.74 per diluted share. Last year's reported earnings were $2.34 per diluted share including a non-cash charge from an accounting change of $0.05. Additional consolidated results for the fiscal year were:

— Revenue of $22.5 billion, up 9% from $20.6 billion the
previous year

— Operating income of $1.47 billion, up 11% from $1.32 billion a
year ago

— Net income of $830 million, up 17% from last year's $710
million

"FedEx achieved record earnings during the year, as the company advanced its strategy of being a full service transportation company with the broadest choices in the industry," said Frederick W. Smith, chairman, president and chief executive officer. "Our strategy execution enabled the company to improve its revenue, earnings and returns during the year, posting a strong performance despite challenging economic conditions."
"FedEx's return on invested capital improved in fiscal 2003, as earnings continued to increase and the company's capital intensity declined," said Alan B. Graf, Jr., executive vice president and chief financial officer. "We believe that our efforts, combined with an improving economy, will provide FedEx improved profitability and cash flow."
Capital spending in fiscal 2003 was $1.5 billion, marking the fifth consecutive year of reduced capital expenditures. The company generated solid positive cash flow during the year despite over $1 billion in pension contributions. The company also repurchased 3.275 million shares of FedEx stock at a cost of $186 million, disbursed $60 million in cash dividends, and increased its cash level by $207 million during 2003. A total of 3.375 million shares remain under the existing share repurchase authorization.
The company recently announced that it would offer two new programs at FedEx Express during fiscal 2004 to enable the company to continue resizing its U.S. organization and improve profitability. The first program will be a voluntary retirement option with an enhanced pension package to certain groups of employees age 50 or older. The second program will offer voluntary severance incentives to eligible employees. Both programs are limited to salaried U.S. staff and some management employees at FedEx Express. Depending on employee acceptance rates, the pretax charge for these programs is estimated to be in a range of $230 million to $290 million in fiscal 2004, with most of the charge to be incurred in the first half of the fiscal year. Approximately one-third of the pretax charge will be cash, with the remainder of the charge relating primarily to pension and post-retirement healthcare liabilities. The estimated savings from these programs are expected to be $100 million to $130 million in fiscal 2004, primarily in the second half of the fiscal year. The resulting net cost of these programs in fiscal 2004 is expected to be $130 million to $160 million. In fiscal 2005 and beyond, the estimated annual savings from these programs are expected to be $150 million to $190 million.

Outlook

During fiscal 2004, the company expects the U. S. economy to remain sluggish in its first fiscal quarter. Year-over-year economic improvement is expected to be evident in the second half of fiscal 2004, although sequential improvement may come earlier. The company believes that the fundamentals are in place for economic acceleration in the U.S. in the second half of fiscal 2004, including supportive conditions in the overall financial market, the recently approved tax stimulus package, continued accommodative monetary stance and improved consumer confidence.
As previously disclosed, the company expects significant increases in pension and healthcare costs in fiscal 2004, the impacts of which will be realized throughout all four quarters. Earnings are expected to be $0.52 to $0.60 per diluted share in the first quarter, although the company continues to be concerned about the current state of the economy and June volume trends at Ground and Freight are tracking slightly below management's expectations. Earnings for the year are expected to be $3.00 to $3.15 per diluted share, as previously forecast.
Both earnings ranges exclude the net impact from the FedEx Express voluntary early retirement and severance programs. Including the expected net cost of these programs of $0.25 to $0.30 per diluted share for fiscal 2004, earnings for the year are expected to be $2.70 to $2.90 per diluted share. Because eligible employees can accept these programs in either the first or second quarter of fiscal 2004, the net cost of these programs in the first quarter cannot be estimated. The company believes that excluding the net cost of these non-recurring programs from our earnings guidance will allow more meaningful comparison to prior periods of our expected operating performance in fiscal 2004.
Capital spending for fiscal 2004 is forecast to be approximately $1.7 billion, with most of the year-over-year increase due to the previously announced multi-year expansion of the FedEx Ground network and to increased investment in information technology.

FedEx Express

For the fourth quarter, FedEx Express reported:

— Revenue of $4.26 billion, up 6% from last year's $4.00 billion

— Operating income of $297 million, up 26% from $236 million a
year ago

Despite one fewer operating day, FedEx Express fourth quarter operating margin increased to 7.0% this year from 5.9% last year. The increase was due to higher fuel surcharge revenue, strong FedEx International Priority(R) (IP) revenue growth, improved trends in salaries and employee benefits and maintenance expense and the effect of management cost control actions.
Higher fuel surcharge revenue provided a $50 million net benefit to operating income in the fourth quarter. However, higher net fuel costs negatively impacted operating income by $24 million for the full year, as fuel surcharge revenue increases were not sufficient to offset higher jet fuel prices. These differences are due to the introduction of a dynamic international fuel surcharge and the timing lag that exists between when the company buys fuel and when the dynamic fuel surcharge indexes automatically adjust.
FedEx IP average daily package volume grew more than 6% in the fourth quarter, led by 16% growth in Asia. FedEx IP revenue per package grew 10% for the quarter, primarily due to exchange rate differences and increased fuel surcharges. 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 4% due to higher fuel surcharges and an increase in base rates.

FedEx Ground

For the fourth quarter, FedEx Ground reported:

— Revenue of $880 million, up 18% from last year's $743 million

— Operating income of $150 million, up 17% from $128 million a
year ago

FedEx Ground average daily package volume grew 13% in the fourth quarter, about 40% of which was attributable to FedEx Home Delivery growth. Yield per package increased 5%. Operating margin was 17.0% for the quarter. FedEx Ground management continues to focus on improving productivity and on closely managing its costs.
FedEx Home Delivery was profitable in fiscal 2003, as coverage for this network was expanded to nearly 100% of the U.S. population during the year. There are now approximately 41,000 shippers that use the service, nearly double the number from a year ago.

FedEx Freight

For the fourth quarter, FedEx Freight reported:

— Revenue of $547 million, up 5% from last year's $522 million

— Operating income of $48 million, down 6% from $51 million a
year ago

FedEx Freight average daily shipments decreased 3% compared to last year's fourth quarter, reflecting the impact of the economy on its customers. Yield improved 10% over the previous year due to general rate increases, favorable contractual renewals, higher fuel surcharge revenues and additional volume from its premium longer-haul EZ Flyer service. Fourth quarter results included $2 million in rebranding expenses, bringing the total fiscal 2003 rebranding cost to $14 million. The FedEx Freight operating margin was 8.7% in the fourth quarter compared with a 9.8% operating margin a year ago, primarily due to higher employee benefits costs and to one fewer operating day in this year's quarter.
FedEx Freight continues to expand its service offerings in collaboration with other FedEx companies. The latest offering is Ocean Ground Distribution which provides distribution from Asia to virtually all continental U. S. ZIP codes, employing the services of FedEx Freight, FedEx Trade Networks and FedEx Ground. A streamlined alternative to traditional ocean services from Asia, this service helps customers reduce inventory cycle time and the need for brick and mortar U.S. distribution facilities.

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, North America's largest customs broker and a provider of international freight forwarding and trade facilitation services. FedEx ranked highest in the J.D. Power and Associates 2002 Small Package Delivery Service Business Customer Satisfaction Study(SM) in the categories of air, ground and international delivery services.
Additional information and operating data are contained in the company's annual report, Form 10-K, Form 10-Qs and fourth 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. EDT on June 24, 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, the extent to which eligible employees participate in the company's voluntary retirement and severance programs, new U.S. domestic or international government regulation, the impact from any terrorist activities or international conflicts, 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.

FEDEX CORP. FINANCIAL HIGHLIGHTS

Fourth Quarter Fiscal 2003
(In millions, except earnings per share)

Three Months Ended Year Ended
May 31 May 31
(Unaudited)
——————— ———————–
2003 2002 % 2003 2002 %
——- ——- —– ——– ——– —–
Revenue:
FedEx Express $4,255 $3,999 6% $16,351 $15,327 7%
FedEx Ground 880 743 18% 3,413 2,711 26%
FedEx Freight 547 522 5% 2,120 1,960 8%
Other 148 152 (3%) 603 609 (1%)
——- ——- ——– ——–
Total Revenue 5,830 5,416 8% 22,487 20,607 9%

Operating Expenses:
Salaries and employee
benefits 2,485 2,386 4% 9,778 9,099 7%
Purchased
transportation 553 474 17% 2,155 1,825 18%
Rentals and landing
fees 442 432 2% 1,803 1,780 1%
Depreciation and
amortization 340 345 (1%) 1,351 1,364 (1%)
Fuel 367 283 30% 1,349 1,100 23%
Maintenance and repairs 329 330 (0%) 1,398 1,240 13%
Airline stabilization
compensation — — NM — (119) NM
Other 822 750 10% 3,182 2,997 6%
——- ——- ——– ——–
Total Operating
Expenses 5,338 5,000 7% 21,016 19,286 9%

Operating Income:
FedEx Express 297 236 26% 786 811 (3%)
FedEx Ground 150 128 17% 495 337 47%
FedEx Freight 48 51 (6%) 178 168 6%
Other (3) 1 NM 12 5 NM
——- ——- ——– ——–
Total Operating
Income 492 416 18% 1,471 1,321 11%

Other Income (Expense):
Interest, net (30) (30) — (118) (139) (15%)
Other, net (11) (15) (27%) (15) (22) (32%)
——- ——- ——– ——–
Total Other Income
(Expense) (41) (45) (9%) (133) (161) (17%)
——- ——- ——– ——–

Pretax Income 451 371 22% 1,338 1,160 15%

Provision for Income
Taxes 171 135 27% 508 435 17%
——- ——- ——– ——–

Income Before Goodwill
Accounting Change 280 236 19% 830 725 14%

Net Income $280 $236 19% $830 $710 17%
======= ======= ======== ========

Diluted Earnings Per
Share:

Income Before
Accounting Change $0.92 $0.78 18% $2.74 $2.39 15%
Cumulative Effect of
Accounting Change — — NM — (0.05) NM
——- ——- ——– ——–
Diluted Earnings
Per Share $0.92 $0.78 18% $2.74 $2.34 17%
======= ======= ======== ========

Weighted Average Common
and Common Equivalent
Shares 303 304 (0%) 303 303 —

Capital Expenditures $337 $314 7% $1,511 $1,615 (6%)

Business Editors

FEDEX CORP. OPERATING HIGHLIGHTS

Fourth Quarter Fiscal 2003
(In thousands, except yield, weight and operating weekdays)

Three Months Ended Year Ended
May 31 May 31
(Unaudited)
——————— ———————–
FEDEX EXPRESS 2003 2002 % 2003 2002 %
————- ——- ——- —– ——– ——– —–

Operating Weekdays 64 65 (2%) 254 255 (0%)

AVG DAILY VOLUME / POUNDS
————————-
Average Daily Package
Volume:

U.S. Overnight Box 1,180 1,179 0% 1,176 1,170 1%
U.S. Overnight Envelope 687 702 (2%) 679 699 (3%)
U.S. Deferred 863 859 0% 897 868 3%
——- ——- ——– ——–
Total U.S. Domestic
Package 2,730 2,740 (0%) 2,752 2,737 1%
International Priority 380 357 6% 369 340 9%
——- ——- ——– ——–
Total Average Daily
Packages 3,110 3,097 0% 3,121 3,077 1%
======= ======= ======== ========

Average Daily Freight
Pounds:

U.S. 8,324 9,145 (9%) 8,969 7,736 16%
International 2,224 2,138 4% 2,174 2,082 4%
——- ——- ——– ——–
Total Avg Daily
Freight Pounds 10,548 11,283 (7%) 11,143 9,818 13%
======= ======= ======== ========

YIELD
—–
Revenue Per Package:

U.S. Overnight Box $18.43 $17.86 3% $18.18 $17.90 2%
U.S. Overnight Envelope 10.16 9.78 4% 9.95 9.84 1%
U.S. Deferred 11.40 10.89 5% 11.02 10.77 2%
——- ——- ——– ——–
Total U.S. Domestic
Package 14.13 13.60 4% 13.82 13.58 2%
International Priority 48.74 44.24 10% 46.59 44.16 6%
——- ——- ——– ——–
Composite Package
Yield $18.36 $17.13 7% $17.69 $16.96 4%
======= ======= ======== ========

Revenue Per Freight
Pound:

U.S. $0.73 $0.64 14% $0.69 $0.65 6%
International 0.75 0.70 7% 0.72 0.72 —
——- ——- ——– ——–
Composite Freight
Yield $0.73 $0.65 12% $0.69 $0.66 5%
======= ======= ======== ========

FEDEX GROUND
————

Operating Weekdays 64 64 — 252 253 (0%)

Average Daily Package
Volume 2,125 1,874 13% 2,168 1,755 24%
Yield $6.47 $6.19 5% $6.25 $6.11 2%

FEDEX FREIGHT
————-

Operating Weekdays 64 65 (2%) 252 253 (0%)

Average Daily Shipments 56 58 (3%) 56 56 —
Weight Per Shipment (lbs) 1,120 1,116 0% 1,114 1,114 —
Yield (Revenue/CWT) $13.69 $12.50 10% $13.40 $12.41 8%

FEDEX CORP.
———–

Average Full-Time
Equivalents (FTEs) 189 186 2% 191 185 3%

Business Editors

FEDEX CORP. CONDENSED CONSOLIDATED BALANCE SHEET

Fourth Quarter Fiscal 2003
(In millions)

Year Ended
May 31
—————–
2003 2002
——– ——–
ASSETS
——

Current Assets:
Cash and cash equivalents $538 $331
Other current assets 3,403 3,334
——– ——–
Total Current Assets 3,941 3,665

Net Property and Equipment 8,700 8,302

Other Assets 2,744 1,845
——– ——–

$15,385 $13,812
======== ========

LIABILITIES AND STOCKHOLDERS' INVESTMENT
—————————————-

Current Liabilities:
Current portion of long-term debt $308 $6
Other current liabilities 3,027 2,847
——– ——–
Total Current Liabilities 3,335 2,853

Long-Term Debt, Less Current Portion 1,709 1,800

Deferred Income Taxes and Other Liabilities 3,053 2,614

Total Common Stockholders' Investment 7,288 6,545
——– ——–

$15,385 $13,812
======== ========

Business Editors

FEDEX CORP. CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS

Fourth Quarter Fiscal 2003
(In millions)

Year Ended
May 31
—————–
2003 2002
——– ——–

Operating Activities:
Net income $830 $710
Noncash charges (credits):
Depreciation and amortization 1,351 1,364
Other, net 434 209
Changes in operating assets and liabilities, net (744) (55)
——– ——–

Net cash provided by operating activities 1,871 2,228
——– ——–

Investing Activities:
Capital expenditures (1,511) (1,615)
Business acquisitions, net of cash required — (35)
Proceeds from asset dispositions 22 27
Other, net (1) 11
——– ——–

Net cash used in investing activities (1,490) (1,612)
——– ——–

381 616

Financing Activities:
Dividends paid (60) —
Other, net (114) (406)
——– ——–

Net cash used in financing activities (174) (406)
——– ——–

Net increase in cash and cash equivalents 207 210

Cash and cash equivalents at beginning of period 331 121
——– ——–
Cash and cash equivalents at end of period $538 $331
======== ========

Business Editors

FEDEX EXPRESS FINANCIAL HIGHLIGHTS

Fourth Quarter Fiscal 2003
(In millions, except FTEs)

Three Months Ended Year Ended
May 31 May 31
(Unaudited)
——————— ———————–
2003 2002 % 2003 2002 %
——- ——- —– ——– ——– —–
Revenue $4,255 $3,999 6% $16,351 $15,327 7%

Operating Expenses:
Salaries and employee
benefits 1,747 1,680 4% 6,855 6,467 6%
Purchased
transportation 163 140 16% 608 562 8%
Rentals and landing
fees 382 373 2% 1,548 1,524 2%
Depreciation and
amortization 201 204 (1%) 801 806 (1%)
Fuel 333 261 28% 1,231 1,009 22%
Maintenance and repairs 247 262 (6%) 1,084 980 11%
Airline stabilization
compensation — — NM — (119) NM
Intercompany charges 346 342 1% 1,347 1,332 1%
Other 539 501 8% 2,091 1,955 7%
——- ——- ——– ——–
Total Operating
Expenses 3,958 3,763 5% 15,565 14,516 7%
——- ——- ——– ——–

Operating Income 297 236 26% 786 811 (3%)

Other Income (Expense):
Interest, net (11) (14) (21%) (44) (56) (21%)
Other, net (17) (16) 6% (53) (52) 2%
——- ——- ——– ——–
(28) (30) (7%) (97) (108) (10%)
——- ——- ——– ——–

Pretax Income 269 206 31% 689 703 (2%)

Provision for Income
Taxes 101 74 36% 258 260 (1%)
——- ——- ——– ——–

Net Income $168 $132 27% $431 $443 (3%)
======= ======= ======== ========

Operating Margin 7.0% 5.9% 4.8% 5.3%

Average Full-Time
Equivalents (000s) 119 120 (1%) 120 120 —

Business Editors

FEDEX GROUND FINANCIAL HIGHLIGHTS

Fourth Quarter Fiscal 2003
(In millions)

Three Months Ended Year Ended
May 31 May 31
(Unaudited)
——————— ———————–
2003 2002 % 2003 2002 %
——- ——- —– ——– ——– —–
Revenue $880 $743 18% $3,413 $2,711 26%

Operating Expenses:
Salaries and employee
benefits 161 141 14% 637 532 20%
Purchased
transportation 328 274 20% 1,294 1,032 25%
Rentals 17 16 6% 79 71 11%
Depreciation and
amortization 40 34 18% 153 132 16%
Fuel 4 1 NM 11 4 NM
Maintenance and repairs 22 18 22% 86 73 18%
Intercompany charges 79 61 30% 329 238 38%
Other 79 70 13% 329 292 13%
——- ——- ——– ——–
Total Operating
Expenses 730 615 19% 2,918 2,374 23%
——- ——- ——– ——–

Operating Income $150 $128 17% $495 $337 47%
======= ======= ======== ========

Operating Margin 17.0% 17.2% 14.5% 12.4%

Business Editors

FEDEX FREIGHT FINANCIAL HIGHLIGHTS

Fourth Quarter Fiscal 2003
(In millions)

Three Months Ended Year Ended
May 31 May 31
(Unaudited)
——————— ———————–
2003 2002 % 2003 2002 %
——- ——- —– ——– ————–
Revenue $547 $522 5% $2,120 $1,960 8%

Operating Expenses:
Salaries and employee
benefits 322 308 5% 1,255 1,170 7%
Purchased
transportation 18 16 13% 68 57 19%
Rentals 15 16 (6%) 65 64 2%
Depreciation and
amortization 22 21 5% 83 86 (3%)
Fuel 25 18 39% 89 72 24%
Maintenance and repairs 29 25 16% 113 90 26%
Intercompany charges 2 2 — 13 8 63%
Other 66 65 2% 256 245 4%
——- ——- ——– ——–
Total Operating
Expenses 499 471 6% 1,942 1,792 8%
——- ——- ——– ——–

Operating Income $48 $51 (6%) $178 $168 6%
======= ======= ======== ========

Operating Margin 8.7% 9.8% 8.4% 8.6%

Business Editors

–30–LC/na*

CONTACT: FedEx Corporation, Memphis
Media Contact:
Shirlee Clark, 901/818-7463
or
Investor Contact:
Jim Clippard, 901/818-7468
Home Page: www.fedex.com

KEYWORD: TENNESSEE
INDUSTRY KEYWORD: TRANSPORTATION AIRLINES CONFERENCE CALLS
EARNINGS
SOURCE: FedEx Corporation