FedEx Corp. Reports First Quarter Earnings; Growth in Smaller Shippers at FedEx Ground and Outstanding Cost Management Benefit Quarter

Business Wire, Sept 20, 2001

Business Editors

MEMPHIS, Tenn.--(BUSINESS WIRE)--Sept. 20, 2001

FedEx Corporation (NYSE:FDX) today reported earnings for the quarter ended August 31 of $0.41 per diluted share before the effect of an accounting change, down 29% from $0.58 per diluted share last year. Net income for the quarter was $0.36 per diluted share including a non-cash charge from an accounting change of $0.05 per diluted share related to the adoption of Statement of Financial Accounting Standards No. (SFAS) 142 "Goodwill and Other Intangible Assets."

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

-- Revenue of $5.04 billion, up 5% from $4.78 billion the previous year

-- Operating income of $235 million, down 24% from $311 million a year ago

-- Income before the effect of an accounting change of $124 million, down 27%
from last year's net income of $169 million

"This quarter's results reflect the competitive strength of our diversified and expanded portfolio of services, as well as outstanding expense management across all our companies," said Alan B. Graf, Jr., executive vice president and chief financial officer. "FedEx Ground experienced strong growth in both volumes and yields, while weakness in the manufacturing and high-tech sectors reduced demand for our premium services at FedEx Express. Also, the addition of American Freightways in the second half of fiscal 2001 allowed us to report increased revenue during a period of virtually flat economic growth."

At FedEx Express, the market leader in global express services, U.S. domestic average daily volume declined 7% year over year for the first quarter while volume from its FedEx International Priority(R) service was down 1%. At FedEx Ground, average daily volume grew 8% on the strength of FedEx Home Delivery and core business-to-business shipments, with yields increasing 8% for the quarter due to effective yield management efforts.

The company continues to implement revenue enhancement and cost reduction programs to provide long-term revenue and profit growth and to reduce costs to match near-term business levels. Major revenue initiatives include:

-- Airport-to-airport transportation of Priority, Express and

First-Class Mail for the U.S. Postal Service, which began on

August 27.

-- Expansion of the FedEx Home Delivery network to 80% of the

U.S. population, beginning September 25. FedEx Home Delivery

will open 63 additional locations in regions throughout the

U.S., including 56 co-located terminals with existing FedEx

Ground facilities, minimizing capital expenditures.

-- FedEx Online Express Savings Program, launched on September 4,

provides an incentive for customers to shift to the ease,

speed and convenience of fedex.com, a site which gives them

instant access to our broad portfolio of global shipping and

business-building services. Shippers who qualify for the

online promotion will be eligible for up to a 10% discount off

list rates for many express services when shipping through

fedex.com.

-- The nationwide placement of up to 10,000 FedEx Drop Boxes

outside U.S. Post Offices, more than 4,100 of which have been

placed since national rollout began on June 19.

Management continues to scrutinize all capital spending programs, reduce discretionary expenses at each operating company and defer non-essential hiring.

"Since our first quarter ended, the global economy has weakened further," said Graf. "Prior to the tragic events of September 11, we were comfortable with the existing range of analysts' estimates for the second quarter. It is extremely difficult for us to fully assess the financial effects of last week's events at this point, but our volumes at FedEx Express were substantially reduced last week while our aircraft were grounded and our volumes have not yet recovered to levels existing prior to the tragedy. We intend to continue to manage the company's cost structure to remain profitable in the second quarter and the remainder of fiscal 2002."

"We cannot be certain right now how the events of last week will ultimately impact the U.S. and global economies, the air transportation industry and FedEx," said Frederick W. Smith, chairman, president and chief executive officer. "Nonetheless, we see our company well positioned to significantly increase growth, profitability, returns and cash flow as the global economies improve and trading activities increase."

During the first quarter, the company adopted the Financial Accounting Standards Board's new rules for the treatment of goodwill and other intangible assets. Adoption of these new rules resulted in a $15 million net of tax charge, or $0.05 per share. This expense is reflected as a change in accounting adjustment to reduce the carrying value of goodwill at one of the company's smaller operating units. First quarter results also reflect the cessation of $9 million of goodwill amortization from the quarter's operating expenses.

FedEx Express

For the first quarter, FedEx Express reported:

-- Revenue of $3.74 billion, down 5% from last year's $3.92