FedEx Corporation
Q1 2022 Earnings Call Transcript
Published:
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- This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear. The machine-assisted output provided is partly edited and is designed as a guide.
- Operator:
- 00
- Mickey Foster:
- 00
- Raj Subramaniam:
- 02
- Brie Carere:
- 10
- Mike Lenz:
- 16
- Operator:
- 26
- Scott Group:
- 26
- Raj Subramaniam:
- 27
- Mike Lenz:
- Yeah, Scott, just I would add, I think you can't just characterize all transportation companies in one singular bucket there and assume that everybody has the same considerations in terms of the nature of the business there. We've kind of explained with great specificity how this operationally impacts us and thus the financial ramifications of that. So, look, we fully recognize that the first quarter wasn't what we anticipated. We've taken a number of actions to address that. We will continue to identify further actions but I will fully say if the circumstances don't change as we identify here, we absolutely would need to revisit the pace of the plans that we have. The strategies are sound, but we would absolutely need to think about the pace of things given the environment that we're operating in. So, I think Brie highlighted the characteristics of what growth is and will continue to be in the business. So that remains the underpinning going forward.
- Operator:
- 30
- Brandon Oglenski:
- 30
- Mike Lenz:
- 30
- Brandon Oglenski:
- Well, you Mike, the frustrating thing I think for a lot of your investors is that the growth is very evident, especially in the last few years, it's just that margins have not improved. So there's always a plan to improve margins that doesn't seem to come through. So what are the bold steps that can be taken to improve those outcomes in the future?
- Mike Lenz:
- Well, let me just step back a little bit. We had record results in twenty one and improved margins. Our guidance albeit lower than what we shared with you three months ago is if you look at the operating earnings in fact is double digit at the low end, we had some discrete tax items there. So, indeed, we are focused on driving improved margins, cash flows and returns and feel that we're projecting another record year on top of a record year. So, again, we are absolutely committed to continuing that trajectory.
- Operator:
- 33
- Chris Wetherbee:
- 33
- Mike Lenz:
- Well, let me let take a swing at that first. So as it relates to the cost inflation and taking that category broadly, let me just clarify what's in our outlook. The network inefficiencies inherently are contributing to that cost increase that you're talking about. We expect those to mitigate and work away. In our outlook that we're giving you here, we're not assuming any change in terms of the current labor market in terms of wage rates and that. So just to give you an illustrative example here, a year ago, our package handlers at Ground, we are paying an hourly rate that is sixteen percent more than previously, at our Express major sort locations the hourly rate is north of a twenty five percent increase. So that is the reality of the labor market right now. And so as Brie highlighted, we are taking a number of actions to recognize and address that; maybe if I help talk through as we go through the year here, I think maybe part of what you - we are also there. So again, like I said, more efficient operations as we go through the year, The pricing actions that we announced yesterday combined with our ongoing efforts, those largely will impact the second half of the year. 35
- Raj Subramaniam:
- I just going to cap it of course by just saying that we expect in the second half that improve margins in all segments of our business.
- Operator:
- And next we'll go to Ravi Shanker from Morgan Stanley. Your line is open.
- Ravi Shanker:
- 36
- Mike Lenz:
- 37
- Ravi Shanker:
- Sorry if I can try again, if I stop , I was wondering if you could get us a little bit more detail into why you think second half is going to be materially better than the first half because some of the items you quantified, the yield contribution, the variable comp etcetera, those seem kind of non-operational almost one-time nature kind of, so again, do you really feel like the top line could accelerate, the volumes are going to accelerate and the reason I’m asking this question is because you basically cut your full year guidance by approximately the magnitude of the first quarter miss, which does not seem to imply that you are expecting the labor cost (ph) to continue for the rest of the year?
- Mike Lenz:
- Well, we're not sitting on our hands amidst the circumstances, we're taking actions to mitigate it. So, I wouldn't characterize it as just singularly looking at Q1 and changing as a result of the outcome of that. So we're aggressively managing every aspect there. 38
- Brie Carere:
- 39
- Operator:
- 40
- Ken Hoexter:
- 40
- Raj Subramaniam:
- 41
- Brie Carere:
- 41
- Operator:
- 42
- Tom Wadewitz:
- 43
- Raj Subramaniam:
- 43
- Mike Lenz:
- 44
- Operator:
- 45
- Brian Ossenbeck:
- 45
- Brie Carere:
- 46
- Operator:
- 47
- Jordan Alliger:
- 47
- Brie Carere:
- 48
- Operator:
- 49
- David Vernon:
- 49
- Brie Carere:
- 50
- Operator:
- 50
- Todd Fowler:
- 50
- Mike Lenz:
- 51
- Operator:
- 52
- Amit Mehrotra:
- 52
- Mike Lenz:
- 53
- Operator:
- And next we'll go to Helane Becker from Cowen. Your line is open.
- Helane Becker:
- 53
- Mike Lenz:
- 54
- Operator:
- 55
- Jack Atkins:
- 55
- Mike Lenz:
- 56
- Operator:
- 59
- Allison Poliniak:
- Hi good evening. Brie, I think you had mentioned low-single digit share internationally, certainly unique environment, limited capacity. Can you maybe talk to how you are focused on expanding share, things you're doing there, but more importantly what are you doing to try to retain some of that share you're capturing today, you know once capacity eases at this point?
- Brie Carere:
- Great question. So, a couple of things; number one, when we think about our international business, our largest growth opportunity is Europe. So, when we think about what are we doing to gain share, well first and foremost, we're going to complete the physical integration which is obviously critical, but when I think about Europe there's three lines of business. There's the intra- Europe. We bought TNT, and it has a very comprehensive and very unique value proposition, because it's got the parcel and the freight network intra-Europe to grow our cross-border business and we're very pleased with the momentum there. From an international perspective, late last fiscal year, we expanded our intercontinental value proposition between Europe and the United States. 60
- Operator:
- 62
- Bascome Majors:
- 62
- Mike Lenz:
- 62
- Raj Subramaniam:
- Well, we are extremely proud of the FedEx freight team, and they are also leading with exactly the same set of challenges, and but we have -- the team has done a fantastic job of managing through our revenue quality and operational efficiency despite these challenging circumstances, and we know it's an obviously very, very key part of our portfolio. Having said that, twenty million packages on the ground network per day or the ground US domestic parcel network is a very different – very different set of challenges than dealing with a much smaller set of shipments that go through the freight system. So, your point about sharing best practices and making sure that we do the right thing across our operating companies, that goes on every single day, and we operate collaboratively is a big mantra at FedEx now, and we are definitely doing that. So again, I'm very, very proud of what the freight team has done here.
- Operator:
- 64
- Duane Pfennigwerth:
- 64
- Mike Lenz:
- So, I think if I understand the question, it is a staffing availability issue on the two fifty million piece of it. For the two hundred million, it's the rate. So, just to reiterate that, and like I said, we fully expect and are beginning to see some improvement in the availability but should not – should plan to not proceed as we fully expect. And like I said earlier, we would need to obviously reassess the pace of implementing the initiatives there, but the opportunity remains nonetheless. We just need to be mindful of the overall environment.
- Raj Subramaniam:
- 65
- Operator:
- 66
- Mickey Foster:
- 66
- Operator:
- 66
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