Operator: Good day, everyone, and welcome to the FedEx Corporation First Quarter Fiscal Year 2014 Earnings Conference Call. As a reminder, today's call is being recorded.
At this time, I'd like to turn the call over to Mr. Mickey Foster, Vice President of Investor Relations for FedEx Corporation. Please go ahead, sir.
Mickey Foster - VP, IR: Good morning, and welcome to FedEx Corporation's first quarter earnings conference call. The first quarter earnings release and our stat book are on our website at FedEx.com. This call is being broadcast from our website and the replay and podcast will be available for about one year.
Joining us on the call today are members of the media. During our question-and-answer session, callers will be limited to one question in order to allow us to accommodate all those who would like to participate. If you are listening to the call through our live webcast, feel free to submit your question via email or as a message on StockTwits.com. For email, please include your full name and contact information with your question and send it to email@example.com address. To send a question via StockTwits.com, please be sure to include $FDX in the message, preference will be given to enquiries of a long-term strategic nature.
I want to remind all listeners that FedEx Corporation desires to take advantage of the Safe Harbor provisions of the Private Securities Litigation Reform Act. Certain statements in this conference call may be considered forward-looking statements within the meaning of the act. Such forward-looking statements are subject to risks, uncertainties, and other factors, which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For additional information on these factors, please refer to our press releases and filings with the SEC.
To the extent we disclose any other non-GAAP financial measures on this call, please refer to the Investor Relations portion of our website at fedex.com for a reconciliation of such measures to the most directly comparable GAAP measures.
Joining us on the call today are Fred Smith; Alan Graf; Mike Glenn; Chris Richards; Rob Carter; Dave Bronczek; Henry Maier; and Bill Logue.
Now, our Chairman, Fred Smith, will share his views on the quarter.
Frederick W. Smith - Chairman, President and CEO: Thank you, Mickey. Good morning and welcome to our discussion of operating and financial results for the first quarter of fiscal year '14. FedEx had a good quarter despite higher fuel costs and one fewer operating day. Growth and overall customer demand for our wide range of global transportation solutions drove improved earnings.
FedEx Ground reported another outstanding quarter as average daily volume grew 11%. FedEx Express is skillfully executing its profit improvement plans. As part of this earlier this month, FedEx Express took delivery of its first new Boeing 767-300 freighter, which uses about 30% less fuel and offers at least a 20% operating costs over the MD-10 it replaces.
We're reaffirming our forecast for full year's earnings per share growth of 7% to 13% over FY '13 adjusted results. We believe FedEx is well positioned for continued growth and success as customers around the world realize the full value of our portfolio of solutions.
Now, I'll turn the call over to Mike Glenn for his views on the economy and then to Alan Graf, for details on the financial results. Mike?
T. Michael Glenn - EVP, Market Development and Corporate Communications: Thank you, Fred. The FedEx economic forecast calls for continued moderate growth in the global economy. Our U.S. GDP growth forecast is 1.6% for calendar year '13 which is down 0.4 versus last quarter and 2.5% for calendar '14 which represents no change versus the last quarter.
For industrial production, we expect growth of 2.4% in calendar '13, again down 0.4 versus last quarter and 3.4% in calendar '14 which is down 0.1 versus last quarter. It's important to note that historical data revisions account for most of the reduction in the calendar year '13 growth rates. Policy risk remain high, but there are signs of improvement in Europe and China. Our global GDP growth forecast is 2% for calendar '13 down 0.3 versus last quarter and 2.9% for calendar '14, down 0.1 versus last quarter.
Turning to yield per package in the domestic Express segment, excluding the impact of fuel, year-over-year package yield increased 2.7%. The increase was primarily driven by rate and discount improvements, followed by increased weight per package and product mix. The Ground package yield increased 2.2% excluding the impact of fuel. The year-over-year increase was driven by rate and discount improvements, and increase in extra services charges and product mix. In the international Express segment export, excluding fuel, international export Express package yield declined 2.1% year-over-year due to changes to rate and discount in weight.
Finally, in the Freight segment, or the LTL segment, excluding the impact of fuel, yield per hundred weight increased 1.1% year-over-year. The increase was primarily driven by rate and discount changes and shipment class.
Now, I'll turn it over to Alan Graf.
Alan B. Graf, Jr. - EVP and CFO: Thank you, Mike, and good morning, everyone. We had a good quarter. Revenues and earnings increased, driven by the solid performances in all of our transportation segments. Operating income grew 7% year-over-year, primarily from improved profitability at Express, higher volumes and increased yields at Ground, and improved performance at Freight.
Our margin improved 30 basis points versus last year to 7.2%, despite significant headwinds from the fuel surcharge timing lag as well as one fewer operating day. Offsetting those headwinds for the quarter were benefits from lower aircraft maintenance and salaries and wages expense.
For Express, quarter one operating income grew 14% and operating margin improved 50 basis points year-over-year despite the significant negative impact of net fuel and one fewer operating day. The improvement was driven by stronger U.S. based business performance, lower pension expense, and the continued modernization of the Company's aircraft fleet, which helped to drive maintenance costs lower. These were partially offset by higher related depreciation expense.
Turning to Ground, operating income grew 5% year-over-year despite the negative impact of fuel. Higher network expansion costs were also incurred, as we continue to invest heavily in the growing Ground and SmartPost businesses at very high ROIC. The improvement in Ground was driven by higher volumes despite one fewer operating day and higher revenue per package.
Freight's operating income increased slightly despite one fewer operating day year-over-year. Higher weight per shipment, LTL yields, and average daily LTL shipments improved income at Freight. Freight continued to optimize the line haul network by increasing utilization of lower cost rail over the quarter; now at 17% of total line haul miles.
As for the outlook, based on the economic conditions that Mike talked about, we reaffirm our FY '14 earnings per share growth of 7% to 13% from the FY '13 adjusted results. Our outlook depends on stable fuel prices. Fuel price volatility impacts the timing of our fuel surcharge levels in relation to fuel expense and ultimately demand for our services.
As part of our profit improvement program, we are continuing to evaluate further cost reduction actions to continue to improve our results at Express and to ensure that we achieve our $1.6 billion profit improvement goal at Express by the end of FY '16.
With regard to the voluntary buyout program as of August 31 approximately 45% of the 3,600 employees that accepted the voluntary buyout have vacated their positions. The additional 55% will depart throughout the remainder of FY '14 with approximately 25% remaining until May 31, 2014. Total SG&A savings from our profit improvement program is expected to be $600 million on an annual basis by the end of FY '16.
Now, we'll open up the call for questions.
Operator: Justin Yagerman, Deutsche Bank.
Justin Yagerman - Deutsche Bank: I wanted to ask about the capacity side in the international Express business. Obviously, margins a lot better than expected on the Express side this quarter, and I know that due to a lot of what you've got going on in the domestic side as well, but wanted to dig in and see how the progress has going in terms of the third-party linehaul initiative and where you guys are at in terms of frequencies on export flights out of Asia.
David J. Bronczek - President and CEO, FedEx Express: Thanks Justin. This is Dave Bronczek. You're right. We adjusted for the second quarter in a row now last quarter in April and this quarter in July. We reduced some of our global capacity coming out of Asia which you saw in some of our numbers in terms of fuel usage and fuel in general. That being said, our international economy volume continues to grow at a rapid rate. It was up 15%. I think it's been in the teens now for several quarters in a row. So, we're actually putting those packages and that network into the right system form now that is actually benefiting us across the world. Thank you for the question.
Operator: David Ross, Stifel Investments.
J. Bruce Chan - Stifel Investments: It's actually Bruce Chan on for David Ross. I'm just curious on the trade network side. We've heard from some of the other forwarders out there that TransPac volumes have been kind of blah with soft summer volumes and limited optimism for 2014. I'm wondering if your outlook is the same or if you're expecting something a little bit rosier. If rosier, is that because you're taking share whether price-related or product offering related?
David J. Bronczek - President and CEO, FedEx Express: This is Dave again. We are toggling our traffic back and forth between Express and FTN. So FTN is performing very well. I think the volumes are slightly higher. The yields are a little bit weaker. I think that's the case across the world, but it's performing exactly like we had planned it to. So, our FTN organization is doing a terrific job, a great service, and moving the lower yielding international economy into their network.
Operator: Ben Hartford, Baird.
Benjamin Hartford - Robert W. Baird & Co.: I guess if we could just tie that all together, could you give us a sense, Dave, maybe where you believe the network is in relation to needing to divert lower yielding freight off of your aircraft into third-party capacity? Do you feel like that you've gotten out in front of this trade down phenomenon that's been discussed a lot, do you still feel like that there's incremental progress to be made in terms of putting the lower yielding packages on to the appropriate modes? Can you provide some perspective there?
T. Michael Glenn - EVP, Market Development and Corporate Communications: We feel very good about where we are. We have not affected service whatsoever. We have the world-class service around the globe. We've adjusted the capacity moving the right traffic in the right network. We have more upside opportunity to keep growing our international economy, more financially favorably now, whereas in the past we used to cap that traffic. So we have a great network now for international priority, all around the world we have more upside there. We have more upside in international economy as well. It's been a terrific shift for us to match what's happening in the global economy.
Operator: Christian Wetherbee, Citi.
Ben - Citi: It's (Ben) for Chris. My question pertains to ground margin. Wondering if you could give us a sense of some of the individual headwinds that you faced during the quarter, the higher network expansion cost, fuel surcharge, along with operating day, and what those effects were on margin?
Henry J. Maier - FedEx Ground, President and CEO: This is Henry Maier. Virtually all of the year-over-year change in margin was due to fuel. As Alan pointed out, op income was impacted by fuel and one less operating day. Network expansion costs at this point in time are really for capacity and part of our anticipation of peak buildup.
Operator: Scott Group, Wolfe Research.
Scott Group - Wolfe Research: So, Alan, a question for you on the SG&A. I think you mentioned you're now expecting $600 million of savings. I just want to make sure I'm understanding it right. Is that comparable with the $500 million you initially laid out at the Analyst Day over a year ago? Then can you give some color on when we should expect to see that? Just when I look at labor savings this quarter and I back out pension, you don't really see any signs of the headcount reductions, and is that a timing issue or are there any offsets there we should think about?
Alan B. Graf, Jr. - EVP and CFO: Alright, Scott, you asked several questions in there, so let me do my best. First on the tactical one, we made acquisitions last year that are year-over-year, and so you're seeing some of that – on your last question, that's what you're seeing there. Yes, the $600 million is comparable to the $500 million. We are actually well ahead of our cost goal that we outlined 11 months ago, and I feel very comfortable about where we are in the costs side and we'll continue to work that hard. We had great productivity improvement programs going on in other places as well, aside from labor. Notably, AOD productivity, and you're seeing that in our maintenance expenses at Express. We have some additional opportunities in strategic sourcing that we're going to be tackling that I think are going to help us reach our goal. Now having said that, to your strategic question, world looks a lot different today than it did 11 months ago when we gave you the very specific five buckets about how we're going to improve at Express. So, after you listened what Mike said about '13 and '14’s economic outlook, I think that we're going to have a little bit more pressure on our base erosion at Express that we got to, as Dave talked about, match lift a load, if you will. So, we're aggressively doing that. That may mean that we may have to get to the 1.6 a little bit differently than what we described to you and it may mean that we will be more back-end loaded towards the second half of '15 and '16 as we start really driving the leverage of the things that we're doing. But we're committed to the 1.6 and we'll have that by the end of FY '16, and I feel comfortable by saying that in today's environment.
Operator: Ken Hoexter, Bank of America.
Ken Hoexter - Bank of America: Just following on the international side, I just want to understand on the trade down affect, are you taking further steps and to Allen's point there, are you now looking at get some of those costs savings internationally? I think you talked originally may be moving some of these cost programs into the international bucket and have you started to look at that on the cost side?
Alan B. Graf, Jr. - EVP and CFO: Well, Ken, thank you for the question because again I want to stress that as a strategy from FedEx Corporation we are embracing international economy and we like these growth rates and we believe very strongly that we can make the shift at the customers are making while still growing the premium service of IP. It will just be at a slower growth rate than we had anticipated 11 months ago, but the IE network is coming in place very nicely and we're going to continue to work on that and I feel pretty comfortable that we'll make this strategic change and I'll let Dave to give you some more detail.
David J. Bronczek - President and CEO, FedEx Express: Yeah, that's right, Alan. You saw in the numbers, our flight hours were down significantly and our fuel usage was down significantly and that's on our own backbone network. And as we expand our international economy traffic into other networks, that's actually a very positive thing for us on both sides for the financial equation for Express. So, we are embracing the economy service and those traffic cohorts. There's a lot more upside there, we have capped in, in the past.
Operator: Brandon Oglenski, Barclays.
Brandon Oglenski - Barclays Capital: I guess I want to focus for a third a question here on costs. So for the first time, we actually saw Express quarterly cost ex-fuel come down, although slightly. Should we expect that to accelerate throughout fiscal '14 and into '15? And Alan, are those cost cuts just becoming a little bit more challenging to derive, is that why you're saying it might be a little bit more backend-loaded to achieve that 75% of $1.6 billion next year?
Alan B. Graf, Jr. - EVP and CFO: Well, again, I'll start. Again, acquisitions that are now fully in our P&L are kind of masking what we're doing in terms of bending our costs down. And I think I also mentioned to you about we still have over half the people that were still working here through the first quarter from our voluntary buyout program, which a year from now, will be they'll all be have left and we will be able to see a much bigger number at Express directly and from the chargeback that Express gets some services. So I think that's the macro answer to your question. Dave has a lot of specific productivity things going on. I'll turn it over to him.
David J. Bronczek - President and CEO, FedEx Express: Yeah. We've hardened all of our expense programs. They're all working exactly what we would like them to work, how we'd like them to work. It's what we've told you. In fact, I guess was the question before, it's actually all around the world on our expense targets and performance there. So, with the exception of acquisitions that have added a layer of expense and revenue, quite frankly, and without the impact of fuel this quarter that that was significant for Express, our margins – our operating profit is improving 14% is right in line with what we've planned to achieve and are achieving.
Operator: Tom Kim, Goldman Sachs.
Tom Kim - Goldman Sachs: We notice that the cash flows continue to build up nicely, and you are now looking at about $5 billion in the quarter. Could you give us a lilted bit of guidance as to how we should be thinking about the capital allocation with regard to perhaps your longer term plan for CapEx and, as we think about modeling, do we want to be thinking about modeling CapEx as some sort of ratio as a percentage of your fixed assets or revenue, and then within that component, what percent you think is more for replacement as opposed to the growth side of the CapEx?
Alan B. Graf, Jr. - EVP and CFO: Well CapEx strategy has changed over time. As we are now focused on replacement and the modernization of the aircraft fleet at Express, which is driving, you are already seeing it. So, last two fiscal years in the fourth quarter, we've significantly reduced and we retired a number of planes, we've shorten the depreciable lives, which of course is a – which is a headwind for Dave's segment, but it's for replacement capital which is much more efficient and with fuel prices where they are, you know jet's at $3, it's absolutely mandatory that we continue to do that if we're going to hit our 1.6 goal. We want to put as much money as we possibly can into Ground, because it's going to continue to grow. It's very high ROIC Ground's margins are going to stay in the 17% to 19% range and we are going to continue to take market share. At Freight, they have done a great job of continuing to tweak their operating model a lot more on rail. We expect Freight to grow and so we'll invest there as well. As to capital allocation, we continue to talk about that at the strategic level all the time. And we don't have anything to say about capital allocation today and we'll keep you posted.
Operator: Kelly Dougherty, Macquarie.
Kelly Dougherty - Macquarie Capital: I guess, Alan, maybe if you could give us some more color on the different buckets outside of the SG&A. How you get to that $1.6 billion number? I know things have changed around a little bit. But if you could give us any more sense on what the size of the other buckets look like that would be really helpful.
Alan B. Graf, Jr. - EVP and CFO: Well, we're only one quarter into a 12-quarter program. I was just trying to point out that we have to manage the business as well and things change and we're doing that, whereas we were looking at a different revenue outlook for international Express 11 months ago. Components have changed. There will be much more IE in the future than we had anticipated and probably less IP, although it will continue to grow. So, we have to change our cost structure more than we thought. So, you might see a little bit more on the cost side of the equation and a little bit less on the revenue benefit side of the equation.
Frederick W. Smith - Chairman, President and CEO: Yeah, Kelly, these are the buckets that we've gone over before, but just so you can put them down, domestic transformation, or domestic cost network, if you will, international profit improvement across the world, fleet modernization, efficiency of staff, functions and the process there and of course, targeting profitable yields and revenue growth.
Operator: Scott Schneeberger, Oppenheimer.
Scott Schneeberger - Oppenheimer & Co: In Ground, you've spoken about building out a capacity and spending a bit more in CapEx this year. Could you give us a progress report and update on what's going on there? You mentioned some build-out for the holidays. Also, is there any work there to strategically capitalize on e-tailer strategies, expanding distribution networks?
Henry J. Maier - FedEx Ground, President and CEO: Well, this is Henry Maier. There were a lot of questions there, so hope I get them all. First of all, 90% of the capital expense is to expand our capacity for growth, and the large elements of these expenditures are new hubs, building expansions and relocations, material handling and rolling stock. So, we are very disciplined as I've said in the past here about adding capital. We tried to handle peaks in volume with operating expense instead of capital and we generally put together a five to seven year plan based on our forecast as to how we intend to expand the network. Now clearly, our volume is being driven by e-commerce. I think Mike had said in the past year it's growing five to six times the rate of brick-and-mortar. I would tell you that we believe that we are uniquely positioned to compete in this space. We have FedEx Home Delivery for customers that desire high-touch high-value transportation services for the residential deliveries. FedEx Home Delivery offers extra services, including day definite service, appointment service, and evening delivery in addition to signature options. And then we have FedEx SmartPost, which is uniquely positioned to offer a low-cost option for customers who would like to offer free shipping to their customers, and we do this with final mile delivery by the USPS. So, we think that we're uniquely positioned in the marketplace to capture our fair share of e-commerce.
Operator: Jack Atkins, Stephens.
Connor Hustava - Stephens: This is actually Connor Hustava on for Jack today. Just had a quick question on the tech product launches that are planned here in the second half of 2013, can you just give us some color on what you think that will do to overall industry capacity, and maybe what's baked into your guidance from a volume and rate perspective?
T. Michael Glenn - EVP, Market Development and Corporate Communications: This is Mike Glenn. Obviously we'll see some tech launches this week. There have been changes in the way that tech products are moved into the market place, a lot more staging of inventory going on, on the international front as opposed to using expedited from door-to-door, so we have seen some changes in that regard in terms of how product is moved to the U.S. and put into inventory. We will certainly benefit from that with these launches. Probably, a greater benefit in the domestic system, although it is a short burst, so even though with a lot of traffic in a very short period of time, you don't see the long tail of that that potentially you have seen in the past, although certain will benefit from accessories and other things that come on the back end of these tech launches.
Operator: Jeff Kauffman, Buckingham Research.
Jeff Kauffman - Buckingham Research: You did take down modestly your U.S. and global forecast. I know you mentioned Fred that it was related to some changes in the make-ups of these growth objectives. But in terms of your own outlook, you spend a little less CapEx than we were looking for. What are your thoughts on your capital budget for this year? And what is changing in your own forecast, where you're maintaining your forward guidance in the face of lower global growth.
T. Michael Glenn - EVP, Market Development and Corporate Communications: Jeff, this is Mike. Let me clarify, on the calendar year '13 economic outlook, I mentioned that its historical data revisions that are really driving the bulk of the reduction in our calendar year '13 growth rates. Obviously, as GDP numbers are updated, which takes some time, we build that back into their historical trend, and that affects the forecast going forward, so, really not as much material change in the fundamentals of the business as opposed to just historical data revisions on the economic forecast. And I'll let Alan handle the second part.
Alan B. Graf, Jr. - EVP and CFO: Jeff, we're not changing our capital spending plans for this year. As I said, we want to continue to invest heavily in Ground and we want to continue to do the fleet replacement at Express. As we look at '15 and '16 as part of profit improvement program and other things, there may be a possibility that we will slide some of that further out, depending on how the economy goes and we'll just have to see. We have some flexibility to do that, but I think $4 billion is the right number for us this year and we can sort of hold that level for a while, as revenues grow and we'll get a better CapEx to revenue ratio. I'm not making any '15 commitments yet, because we're going to just to wait and see what the outlook looks like. But I can say this that the 767s, the first 25 of them are just beautiful return and operating profit improvement standpoint.
Operator: William Greene, Morgan Stanley.
Bill Greene - Morgan Stanley: Mike, can you remind us on the GRI and Express, how much of the business does that cover and also there's an increase in weight pricing changes, it seems like that's been quite effective in the past?
T. Michael Glenn - EVP, Market Development and Corporate Communications: I'm sorry, you had trouble. We had may be a connection issue. Could you repeat the question just a bit maybe get a little closer to the phone.
Bill Greene - Morgan Stanley: Sure. The question was on the GRI on the Express, how much in the business does that cover and does it include any changes in dim weight because that's been pretty effective for pricing in the past?
T. Michael Glenn - EVP, Market Development and Corporate Communications: Well, that's been one of our key strategies to substantially increase the amount of parcel traffic that is covered by the GRI and we've done a terrific job over the last three to four years. That's been a key component of our revenue management program. So, well over half the traffic is now impacted. We certainly have contracts that still are in place today that are locked into a GRI and is based upon the contract term and not the annual GRI. But we've done – our sales team and our pricing side team have done a phenomenal job of working with customers to get them on an annual rate increase. So, we're very pleased with that. We did not make any changes to the dimensional weight that we put in place several years ago. That's the last time we made the change. But that clearly has benefited the company, that strategic change we made several years ago.
Operator: Allison Landry, Credit Suisse.
Allison Landry - Credit Suisse: I was wondering if you could quantify what the overall fuel lag headwind was during the quarter and if we should be expecting a similar impact in Q2?
Alan B. Graf, Jr. - EVP and CFO: Well, Allison, this is Alan. While we don't give specific numbers, I can tell you it was significant. If you just think about how the fuel prices ran up towards the end of the quarter and our fuel surcharge lagged by six weeks, it's pretty evident that we were pinning a lot higher for jet fuel and not able to pass long surcharge. As to Q2 and the rest, I wish I could tell you. I mean, it's one of the things that's a big wild card on a quarter-to-quarter basis as what happens with particularly jet fuel prices, but also with diesel and vehicle fuel, but particular jet fuel prices. If the global political environment calms down a little bit and the price of crude declines and jet fuel follows it, then that would be beneficial to us in the second quarter. But I can't predict it. So, we just have the six-week lag and we just have to deal with it, over time it evens out. But it sure does cause volatility.
Operator: Tom Wadewitz, JPMorgan.
Tom Wadewitz - JPMorgan: I wanted to follow-up on one of the topics, Dave Bronczek, that you talked about a little bit earlier on the shift of the IE traffic and, I guess, how that relates to trade down. So, your comments were pretty optimistic that you're making good progress. I just wanted to get a sense, is that something that’s kind of you're optimistic because you're going to see this change, but you're early in the change in terms of shifting that traffic, or have you just executed this maybe quicker than we would have anticipated and you'd say, hey, 50% of our IE traffic is already in commercial list and that trade down headwind we've been concerned about, really wasn't that big of an issue in the quarter? So, I guess, some further perspective on the trade down and shift of IE traffic would be great.
David J. Bronczek - President and CEO, FedEx Express: We've actually been looking at this issue, planning for it. As you know, we've talked about it for several quarters. Our team has executed this flawlessly. It's been terrific for our customers and for our network, of course. I think you're going to see going forward that we think we have more opportunity in the International Economy side. We used to cap that International Economy traffic in our existing linehaul network and going forward, there's an opportunity to grow that and grow it successfully. So, I think to answer your question, we planned it now for several quarters, we've executed it flawlessly, and we're very excited about where we are. Mike?
T. Michael Glenn - EVP, Market Development and Corporate Communications: I just would add one point. I think one of the keys to success that we've had is the terrific collaboration between our sales team and the Express operating unit in terms of getting customers into the right network. We're early in that process, but I'm extremely happy with the results in terms of how we've been able to collaborate here to get to the right solution for our customers.
Operator: Keith Schoonmaker, Morningstar.
Keith Schoonmaker - Morningstar: Noticed pretty strong 16% growth in international and domestic volume. Is this organic or mostly from folding in acquisitions? I guess related, could you comment on international regions where you have seen particular strength, please?
David J. Bronczek - President and CEO, FedEx Express: It's from both, actually acquisitions and our organic European plan. The organic plan has performed outstandingly well. I'd like to thank and congratulate our team over there. We've opened 87 stations in the last 18 months and the service has been terrific. So, with that, with the incremental acquisitions we've added, that's where you've seen the domestic international volume up 16%.
Operator: Kevin Sterling, BB&T Capital Markets.
Kevin Sterling - BB&T Capital Markets: You talk a lot about International Economy and, Alan, I think you touched earlier. You said you talked about maybe a little more base erosion in Express. So, how would you characterize where we stand today with the customer trade down? Is it the same as it was a year ago, has it accelerated? Maybe it sounds like you guys are embracing it more, so maybe you could compare where we are today to where we were a year ago.
T. Michael Glenn - EVP, Market Development and Corporate Communications: I think the bigger issue, Kevin, is we are dealing with a new normal. We've seen a lot of the trade down already from customers that have made the change to deferred services. I think we are now talking about more of a growth story going forward in terms of the mix of growth than we are at the trade down story. So, this is a terrific opportunity for us and we plan to take advantage of that opportunity with our network.
Alan B. Graf, Jr. - EVP and CFO: This is Alan. If you think about the aviation and fuel and energy intensity of an international movement and the time differential between the priority and economy, given how high fuel prices are, you can understand why customers are trading down, because they get significantly better price and they give up a couple of days. That's much more difficult to manage in the short-term than what we've been managing in the U.S. between Express, Express deferred and Ground, which we now have right about in the right place. As you noticed, U.S. domestic did fine in the quarter on its revenue growth. So, I’ve got to say hats off to the sales and marketing team for grappling with this and handling this and how swift these changes occurred and our pricing, I think, is right. It's just going to take us a little bit longer than we had hoped to get this perfectly balanced, and Dave can give you some tactical information.
David J. Bronczek - President and CEO, FedEx Express: Yeah. Again, Mike mentioned it before. For example, on the high-tech sector these big releases, in the past, I would have added extra sections of flying. Now, we've moved it into our FTN network and it's very consistent, it's very reliable and we move it into our networks in the United States in Freight and Ground. I mean, it's a perfect portfolio play for us now. And the costs and profit implications are much greater. So, I think, yes, we've embraced it, and I think it's a big opportunity going forward.
Operator: David Vernon, Bernstein.
David Vernon - Bernstein: Just a couple of follow-ups on the International Economy thing. First, Dave, did you just say that the International Economy product was coming into the Ground or Freight network as opposed to the Express network, just as a clarification on the last comment. I wasn't sure if I heard that correctly.
David J. Bronczek - President and CEO, FedEx Express: The international Freight that I'm talking about coming out of Asia and around the world is just moving in a different network in our FTN network and we move it around the world instead of on our FedEx purple tails. When traffic gets into the United States, we look at the service requirements that customers want, and if we can, we move it into Ground, we move into Freight and we move it at Express.
Frederick W. Smith - Chairman, President and CEO: This is Fred Smith. Let me try to say a couple of things here to clarify some of the things that we've been commenting on. In the main Express traffic, whether it's package or light freight, it's smaller and lighter than the type of traffic that's handled in the FTN network. So these big bulk shipments coincident with product releases by the high-tech folk are very difficult to handle, because they are lumpy and they have expectations of very low yields. So, that's the type of movement that Dave is talking about FTN moving and then putting into the Ground and Freight movement. The day-to-day Express movement, whether it's priority or economy is picked up and transported by the Express unit and its moved in the right network. And as Dave said on the linehaul side, depending on what the customer wants its toggle between Express and FTN depending on the nature of the traffic. You certainly cannot fly and own the airplane at today's yields in the general commodity freight network. Now you can say I'm making money in my underbellies if you're accommodation carrier, but at today's yields it's almost too costly to cover the direct operating expenses, much less the capital expenses for some of these operation. So, the market has changed and as Dave and Mike has said and I said at the last conference call it's important you recognize that the International Economy Express is a growth sector. Dave said it's growing 15%. So, we've embraced that and the strategy we've put in place over the last year and which our people have executed is terrific and it's a perfect complement to this heavier traffic that FTN carries, an awful lot of which goes on the ocean, and that is inserted into the ground and freight networks when we get to the United States. So, I think there was – there's a little bit of misunderstanding about the demographics of the traffic as well as the nomenclature of traffic.
Operator: Brian Jacoby, Goldman Sachs.
Brian Jacoby - Goldman Sachs: Regarding future aircraft purchases, can you maybe tell us a little bit more about where you guys stand with respect to leasing versus purchasing aircraft? I know you said a while back – few years back that you're probably leaning more towards putting those aircraft on balance sheet now that you guys are pretty well positioned in the investment grade world.
Alan B. Graf, Jr. - EVP and CFO: This is Alan. Pretty shortly everything is going on balance sheet, whether it's leased or not. So that's not why we leased the airplanes in the past. We're going to own airplanes going forward because we are full effective tax payer and we can use those benefits. And one of the reasons we accelerated our capital the last couple of years was, in fact, to take advantage of the 100% and 50% bonus depreciation.
Frederick W. Smith - Chairman, President and CEO: We haven't leased an airplane in years – 2000, Mickey just informed me. So…
Operator: Jay Van Sciver, Hedgeye.
Jay Van Sciver - Hedgeye: Looking at your international Express regional market position, you've outstanding franchise in the Americas and Asia, but a weaker position in Europe. Does that lack of balance hurt margins and how could you strengthen your presence in Europe?
David J. Bronczek - President and CEO, FedEx Express: The comment that I made earlier and I think we talked about it before, our organic European expansion is adding a very nice layer of growth and cost improvement in Europe and traffic coming in from around the world into Europe. So, we are working hard to be more balanced, I think, that's your point, but we've seen tremendous results in our plans now. We've had it now in place for 18 months and we plan to expand that going forward into the next fiscal year.
Alan B. Graf, Jr. - EVP and CFO: Just to remind you in the last 12 months, we bought companies in Poland, France and South Africa.
Frederick W. Smith - Chairman, President and CEO: And a couple of years ago we made a great acquisition in the United Kingdom and FedEx U.K. is a terrific operation now.
Operator: David Campbell, Thompson Davis and Company.
David Campbell - Thompson Davis and Company: Most of my questions have been answered. But I did just want to understand the forecasts for fiscal '14 are partially based on so-called stable fuel prices. Does that mean stable relative to the prices in August or stable to what?
Alan B. Graf, Jr. - EVP and CFO: It means that there's no volatility in them from where we are because of the lag time between the surcharge and the cost of fuel, which I think I talked about earlier.
Operator: Justin Yagerman, Deutsche Bank.
Justin Yagerman - Deutsche Bank: I don't know if I missed it or not, but I didn't hear the change in frequencies out of Asia, when I had asked that with Dave earlier? And then, I wanted to ask about the GRI following up on Bill Greene's question. The other thing that we didn't see this year is the change in the fuel surcharge alongside of the GRI with Express. So, I was kind of curious if you guys feel like that may not be needed anymore or if that's something that you just decided not to do, or if that wasn't something that you disclosed in the release?
David J. Bronczek - President and CEO, FedEx Express: This is Dave Bronczek. On your first point, it was my first comments that I made, we actually adjustment our global network coming out of Asia this quarter, similarly to what we did last quarter. So, yes, you're right we adjusted Asia down.
T. Michael Glenn - EVP, Market Development and Corporate Communications: This is Mike. We began in 2005 of instituting higher base rate increases, while reducing the fuel surcharge as you noted. The strategy there was to help ensure that the fuel surcharge index was properly aligned to fuel prices and it also gave customers more predictability because if the base rates have been adjusted to account for some of the fuel surcharge. Obviously, it doesn't have the volatility that it would have if it were sitting in the fuel surcharge. We believe the index as it sits today and has been in place since last January is appropriate for the current environment. Although, obviously, we'll reevaluate that each year as a part of the GRI and we'll determine next year as to whether we need to go back to the prior practice or continue with what we did this year.
Operator: Scott Group, Wolfe Research.
Scott Group - Wolfe Research: So, I wanted to ask one on Ground. Is there any way to bucket how much of the margin pressure Ground is fuel and how much is kind of the CapEx rollout and as we think about that CapEx spend, is this kind of one year that sets you up for four or five years of growth or are we at the point where you're going to have big CapEx increases in Ground every year for a while?
Henry J. Maier - FedEx Ground, President and CEO: Scott, this is Henry Maier. As I said before, virtually all of the margin impact in the first quarter year-over-year is due to unfavorable fuel. Concerning CapEx, we put together five, six-year forecasts on our capital needs based on our growth and where we see we're going to be constrained in the network. I'll say again that we are very disciplined about where we add capital. We try to avoid adding capital for peaks in business as best we can. We tend to handle those with operating costs and I think that's probably the answer to your question.
Operator: (Derek Rabe), Raymond James.
Derek Rabe - Raymond James: This is Derek on for Art this morning. Most of my questions have been answered. I wanted to look at the Freight division though if I could and maybe some commentary there on demand trended throughout the quarter and then how it's shaping up so far in September.
William J. Logue - President and CEO, FedEx Freight: Derek, thank you. Appreciate the question. Again, we're pleased with the momentum as we had good balance between yield, weight per shipment and volume. A few network adjustments during the quarter, and again, one less business day, so we were pleased with our progress in the quarter, and again the ops team are doing a really nice job on the efficiencies to balance off that one less day, but good balance overall. Our focus is on good balance yield.
Operator: Dave Ross, Stifel Investment.
J. Bruce Chan - Stifel Investments: It's Bruce Chan again. Just wanted to switch gears a little bit to talk about SmartPost. You know underlying postal rates there went up a little bit, and you know foreseeably are going to continue to do so. At what point do you guys plan on shifting some of that volume on maybe your own fleet, or you are going to kind of continue to pass rate through and keep things as they are?
Henry J. Maier - FedEx Ground, President and CEO: This is Henry Maier. We have the ability through our contracts to pass through postal increases. We are always impacted though by the timing and customer mix in terms of how quickly we can realize that. And you know decisions to switch between networks are largely customer decisions. We don't drive that.
William J. Logue - President and CEO, FedEx Freight: This is Bill Logue from Freight. I got a question here that came in on the internet from William Flynn. What are the opportunities for increasing leverage gains in Freight? It seems if you take an advantage of investment in equipment in the form of lower maintenance cost, but these are being offset by increased PTE cost, our purchase transportation cost, so how should we think about dynamics in Freight going forward? Good question. Again, we've made some good investments in our fleets over the last three years. Purchase transportation is an offset. Again, PTE right now is, you can see rates are up. We're moving as we saw more to the rail, so a combination of moving to the rail price increases in the purchased transportation, but again, seeing the offsetting benefit in our linehaul. So, again, we will keep investing in our fleet as obviously to make sure we have appropriate equipment running at good efficiencies. But again, purchased transportation will always be a supplement to our linehaul and again, our objective there is the combination because rail comes in the purchased transportation bucket. So, again, linehaul, as we all know, is a key objective to improve that for the organization and again, a benefit for leverage going forward for our business.
Operator: That does conclude today's question-and-answer session. Mr. Foster, at this time, I'd like to turn the conference back over to you for additional or closing remarks, sir.
Mickey Foster - VP, IR: Thank you for your participation in FedEx Corporation's first quarter earnings release conference call. Feel free to call any one on the Investor Relations team if you have additional questions about FedEx. Thanks again. Bye.
Operator: That does conclude today's conference. Ladies and gentlemen, we'd like to thank you for your participation. You may now disconnect.