FedEx Corp. Reports Second Quarter Earnings

Full-Year Earnings Outlook Increased

MEMPHIS, Tenn., December 16, 2010 … FedEx Corp. (NYSE: FDX) today reported earnings of $0.89 per diluted share for the second quarter ended November 30. Excluding certain charges described below, second quarter earnings were $1.16 per diluted share, compared to $1.10 per diluted share a year ago.

“Solid demand for our transportation solutions, outstanding customer service from FedEx team members and a healthier global economy helped drive second-quarter revenue higher,” said Frederick W. Smith, FedEx Corp. chairman, president and chief executive officer. “Our yield improvement strategy is working, holiday peak season volumes are exceeding our expectations and our economic forecast for calendar 2011 has improved. Accordingly, we have increased our earnings outlook for our current fiscal year.”

Reported results for the current quarter include costs related to the previously announced combination of the company’s FedEx Freight and FedEx National LTL operations and a reserve associated with a legal matter at FedEx Express, which together negatively impacted earnings by a net $0.27 per diluted share. Last year’s second quarter results included a benefit from plan design changes to a self-insurance program at FedEx Express, which increased earnings by a net $0.05 per diluted share.

Second Quarter Results

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

Revenue of $9.63 billion, up 12% from $8.60 billion the previous year
Operating income of $469 million, down 18% from $571 million last year
Operating margin of 4.9%, down from 6.6% the previous year
Net income of $283 million, down 18% from $345 million a year ago

While shipments and yields grew in all transportation segments, earnings were reduced by costs related to the January 30, 2011 combination of FedEx Freight and FedEx National LTL operations, including severance costs associated with personnel reductions and non-cash asset impairment charges. Earnings were also reduced by a reserve for a legal matter at FedEx Express. The reinstatement of certain employee compensation programs, and higher pension and aircraft maintenance expenses, also impacted earnings.

Outlook

FedEx projects earnings to be $0.95 to $1.15 per diluted share in the third quarter and $5.00 to $5.30 per diluted share for fiscal 2011, up from the company’s previous estimate of $4.80 to $5.25 per diluted share. This guidance excludes any FedEx Freight combination costs and the second quarter legal reserve, and also assumes stable fuel prices and continued moderate growth in the global economy. Including costs from the FedEx Freight combination and the legal reserve, earnings are expected to be $0.78 to $1.04 per diluted share for the third quarter and $4.59 to $4.95 per diluted share for fiscal 2011. The company reported earnings of $0.76 per diluted share in last year’s third quarter. The capital spending forecast for fiscal 2011 remains $3.5 billion.

“Our operating performance in the quarter was impacted by strong compensation and benefits headwinds as we reinstated programs curtailed during the recession,” said Alan B. Graf, Jr., FedEx Corp. executive vice president and chief financial officer. “During the quarter, we also realized more normalized growth in FedEx International Priority shipments and higher fuel prices than our earnings guidance had assumed. Yield improvement and cost management remain our focus. We expect margins to improve in the second half of fiscal 2011 and in fiscal 2012, as we continue to benefit from solid global demand for our differentiated services and as certain cost headwinds subside next fiscal year.”

FedEx Express Segment

For the second quarter, the FedEx Express segment reported:

Revenue of $5.99 billion, up 13% from last year’s $5.31 billion
Operating income of $264 million, down 23% from $345 million a year ago
Operating margin of 4.4%, down from 6.5% the previous year

FedEx International Priority (IP) average daily package volume increased 11%, led by exports from Asia. IP revenue per package grew 3% due to improved weight per package and higher fuel surcharges. IP Freight pounds increased 29%, with revenue per pound up 5%. U.S. domestic average daily package volume increased 3% and revenue per package grew 5% due to improved base pricing, higher fuel surcharges and improved weight per package.

Operating income and margin were negatively impacted by a $66 million reserve associated with an adverse jury decision in the ATA Airlines lawsuit. In addition, prior year results included a one time benefit from plan design changes for a self insurance program. The combination of these two items significantly impacted the year-over-year operating margin comparison. The reinstatement of certain employee compensation programs, increased aircraft maintenance costs and higher pension expenses also impacted operating income and margin.

Earlier today, FedEx announced an agreement to acquire Servicios Nacionales Mupa, SA de CV (MultiPack), a Mexican domestic express package delivery company. Last month, FedEx Express announced plans to acquire the logistics, distribution and express businesses of AFL Pvt. Ltd. and its affiliate, Unifreight India Pvt. Ltd. Once completed, these acquisitions will give FedEx more robust domestic transportation and related capabilities in these important global markets.

FedEx Ground Segment

For the second quarter, the FedEx Ground segment reported:

Revenue of $2.08 billion, up 13% from last year’s $1.84 billion
Operating income of $296 million, up 24% from $238 million a year ago
Operating margin of 14.3%, up from 13.0% the previous year

FedEx Ground average daily package volume grew 7% in the second quarter driven by increases in the business-to-business market and FedEx Home Delivery. Yield increased 5% primarily due to higher fuel surcharges and rate increases. FedEx SmartPost average daily volume increased 17% due to growth in e-commerce, gains in market share and the introduction of new service offerings. FedEx SmartPost yield increased 10% primarily due to lower postage costs as a result of increased deliveries to U.S. Postal Service final destination facilities and increased fuel surcharges.

Operating income and margin increased primarily due to higher package yield and volume.

FedEx Ground and FedEx Home Delivery will increase shipping rates by a net average of 4.9% effective January 3, 2011. The full average rate increase of 5.9% will be partially offset by adjusting the fuel price threshold at which the fuel surcharge begins, reducing the fuel surcharge by one percentage point. FedEx Ground will make additional changes to dimensional weight charges and surcharges, and FedEx SmartPost rates will also increase.

FedEx Freight Segment

For the second quarter, the FedEx Freight segment reported:

Revenue of $1.22 billion, up 14% from last year’s $1.07 billion
Operating loss of $91 million, compared with an operating loss of $12 million a year ago
Operating margin of (7.5%), compared with (1.1%) the previous year

Less-than-truckload (LTL) average daily shipments increased 8%. LTL yield increased 7% year-over-year and 5% from the first quarter, primarily due to yield management programs that include targeted improvement from lower-performing accounts.

The operating loss in the quarter largely resulted from $86 million of costs associated with the combination of the FedEx Freight and FedEx National LTL operations, which will become effective January 30, 2011. These costs primarily relate to severance expenses, asset impairment charges and accelerated depreciation expenses. Additional costs associated with this program totaling $54 to $84 million are expected in the third quarter. The total expected cost of this program has been reduced to $140 to $170 million.

Corporate Overview

FedEx Corp. (NYSE: FDX) provides customers and businesses worldwide with a broad portfolio of transportation, e-commerce and business services. With annual revenues of $37 billion, the company offers integrated business applications through operating companies competing collectively and managed collaboratively, under the respected FedEx brand. Consistently ranked among the world’s most admired and trusted employers, FedEx inspires its more than 285,000 team members to remain “absolutely, positively” focused on safety, the highest ethical and professional standards and the needs of their customers and communities. For more information, visit news.fedex.com .

Additional information and operating data are contained in the company’s annual report, Form 10-K, Form 10-Qs and second quarter fiscal 2011 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 December 16 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, economic conditions in the global markets in which we operate, legal challenges or changes related to FedEx Ground’s owner-operators, new U.S. domestic or international government regulation, the impact from any terrorist activities or international conflicts, our ability to effectively operate, integrate and leverage acquired businesses, changes in fuel prices and currency exchange rates, our ability to match capacity to shifting volume levels and other factors which can be found in FedEx Corp.’s and its subsidiaries’ press releases and filings with the SEC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

TO GAAP FINANCIAL MEASURES

The company believes that meaningful analysis of our financial performance requires an understanding of the factors underlying that performance and our judgments about the likelihood that particular factors will repeat. Excluding a reserve associated with a legal matter and the costs of the combination of FedEx Freight and FedEx National LTL operations from our second quarter earnings and our earnings guidance, net of applicable incentive compensation impacts, will allow more accurate comparisons to prior periods of our second quarter operating performance and our expected operating performance in fiscal 2011. As required by SEC rules, the tables below present a reconciliation of our presented non-GAAP measures to the most directly comparable GAAP measures.

Fiscal 2011 Second Quarter Earnings

		Q2 Diluted Earnings Per Share
Non-GAAP Measure		$1.16
FedEx Freight Combination Costs		(0.17)
ATA Legal Reserve		(0.10)
GAAP Measure		$0.89

Fiscal 2011 Third Quarter and Full-Year Earnings Guidance

	Q3 Diluted EPS Guidance	FY 2011 Diluted EPS Guidance
Non-GAAP Measure	$0.95 to $1.15	$5.00 to $5.30
FedEx Freight Combination Costs	(0.17 to 0.11)	(0.34 to 0.28)
ATA Legal Reserve	“	(0.07)
GAAP Measure	$0.78 to $1.04	$4.59 to $4.95

FEDEX CORP. FINANCIAL HIGHLIGHTS


Second Quarter Fiscal 2011
(In millions, except earnings per share and FTEs)
(Unaudited)

		Three Months Ended								Six Months Ended
		November 30								November 30
		2010			2009			%		2010			2009			%
Revenue:
	FedEx Express segment	$	5,992		$	5,314		13	%	$	11,904		$	10,238		16	%
	FedEx Ground segment		2,077			1,837		13	%		4,038			3,567		13	%
	FedEx Freight segment		1,221			1,068		14	%		2,479			2,050		21	%
	FedEx Services segment		434			465		(7	%)		849			916		(7	%)
	Other & eliminations		(92	)		(88	)	NM			(181	)		(166	)	NM
	Total Revenue		9,632			8,596		12	%		19,089			16,605		15	%

Operating Expenses:
	Salaries and employee benefits		3,779			3,424		10	%		7,582			6,801		11	%
	Purchased transportation		1,390			1,155		20	%		2,717			2,209		23	%
	Rentals and landing fees		628			593		6	%		1,229			1,171		5	%
	Depreciation and amortization		502			487		3	%		981			982		(0	%)
	Fuel		938			744		26	%		1,825			1,410		29	%
	Maintenance and repairs		473			410		15	%		990			811		22	%
	Impairment and other charges		67			“		NM			67			“		NM
	Other		1,386			1,212		14	%		2,601			2,335		11	%
	Total Operating Expenses		9,163			8,025		14	%		17,992			15,719		14	%

Operating Income (Loss):
	FedEx Express segment		264			345		(23	%)		621			449		38	%
	FedEx Ground segment		296			238		24	%		583			447		30	%
	FedEx Freight segment		(91	)		(12	)	NM			(107	)		(10	)	NM
	Total Operating Income		469			571		(18	%)		1,097			886		24	%

Other Expense:
	Interest, net		(23	)		(15	)	53	%		(41	)		(33	)	24	%
	Other, net		(9	)		(9	)	“			(16	)		(12	)	33	%
	Total Other Expense		(32	)		(24	)	33	%		(57	)		(45	)	27	%

Pretax Income			437			547		(20	%)		1,040			841		24	%

Provision for Income Taxes			154			202		(24	%)		377			315		20	%

Net Income		$	283		$	345		(18	%)	$	663		$	526		26	%

Diluted Earnings Per Share		$	0.89		$	1.10		(19	%)	$	2.09		$	1.68		24	%

Weighted Average Common and Common Equivalent Shares			316			314		1	%		316			313		1	%

Capital Expenditures		$	1,047		$	668		57	%	$	2,059		$	1,549		33	%

Average Full-Time Equivalents (000s)			255			244		5	%		253			241		5	%

FEDEX CORP. CONDENSED CONSOLIDATED BALANCE SHEETS


Second Quarter Fiscal 2011
(In millions)


		Nov. 30, 2010
ASSETS		(Unaudited)			May 31, 2010

Current Assets
Cash and cash equivalents		$	1,877		$	1,952
Receivables, less allowances			4,279			4,163
Spare parts, supplies and fuel, less allowances			400			389
Deferred income taxes			540			529
Prepaid expenses and other			302			251
	Total current assets		7,398			7,284

Property and Equipment, at Cost			32,720			31,302
Less accumulated depreciation and amortization			17,454			16,917
	Net property and equipment		15,266			14,385

Other Long-Term Assets
Goodwill			2,224			2,200
Other assets			1,205			1,033
	Total other long-term assets		3,429			3,233

		$	26,093		$	24,902

LIABILITIES AND STOCKHOLDERS’ INVESTMENT

Current Liabilities
Current portion of long-term debt		$	251		$	262
Accrued salaries and employee benefits			1,231			1,146
Accounts payable			1,561			1,522
Accrued expenses			1,820			1,715
	Total current liabilities		4,863			4,645

Long-Term Debt, Less Current Portion			1,667			1,668

Other Long-Term Liabilities
Deferred income taxes			976			891
Pension, postretirement healthcare and other benefit obligations			1,731			1,705
Self-insurance accruals			969			960
Deferred lease obligations			913			804
Deferred gains, principally related to aircraft transactions			257			267
Other liabilities			156			151
	Total other long-term liabilities		5,002			4,778

Commitments and Contingencies

Common Stockholders’ Investment
Common stock, $0.10 par value, 800 million shares authorized			31			31
Additional paid-in capital			2,343			2,261
Retained earnings			14,515			13,966
Accumulated other comprehensive loss			(2,316	)		(2,440	)
Treasury stock, at cost			(12	)		(7	)
	Total common stockholders’ investment		14,561			13,811

		$	26,093		$	24,902

FEDEX CORP. CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS


Second Quarter Fiscal 2011
(In millions)
(Unaudited)

	Six Months Ended
	November 30
	2010			2009

Operating Activities:
Net income	$	663		$	526
Noncash charges:
Depreciation and amortization		981			982
Other, net		262			176
Changes in operating assets and liabilities, net		105			(327	)

Net cash provided by operating activities		2,011			1,357

Investing Activities:
Capital expenditures		(2,059	)		(1,549	)
Proceeds from asset dispositions and other		7			33

Net cash used in investing activities		(2,052	)		(1,516	)

Financing Activities:
Principal payments on debt		(12	)		(625	)
Dividends paid		(76	)		(69	)
Other, net		29			13

Net cash used in financing activities		(59	)		(681	)

Effect of exchange rate changes on cash		25			13

Net decrease in cash and cash equivalents		(75	)		(827	)

Cash and cash equivalents at beginning of period		1,952			2,292
Cash and cash equivalents at end of period	$	1,877		$	1,465

FEDEX EXPRESS SEGMENT FINANCIAL AND OPERATING HIGHLIGHTS


Second Quarter Fiscal 2011
(Dollars in millions)
(Unaudited)

		Three Months Ended								Six Months Ended
		November 30								November 30
FINANCIAL HIGHLIGHTS		2010			2009			%		2010			2009			%

Revenue		$	5,992		$	5,314		13	%	$	11,904		$	10,238		16	%

Operating Expenses:
	Salaries and employee benefits		2,253			2,036		11	%		4,511			4,079		11	%
	Purchased transportation		388			283		37	%		757			538		41	%
	Rentals and landing fees		427			396		8	%		830			781		6	%
	Depreciation and amortization		265			251		6	%		520			503		3	%
	Fuel		802			638		26	%		1,556			1,209		29	%
	Maintenance and repairs		320			267		20	%		672			528		27	%
	Intercompany charges		512			470		9	%		1,025			939		9	%
	Other¹		761			628		21	%		1,412			1,212		17	%
	Total Operating Expenses		5,728			4,969		15	%		11,283			9,789		15	%

Operating Income		$	264		$	345		(23	%)	$	621		$	449		38	%

Operating Margin			4.4	%		6.5	%	(2.1 pts)			5.2	%		4.4	%	0.8 pts

OPERATING STATISTICS

Operating Weekdays			63			63		“			128			128		“

AVG DAILY VOLUME / POUNDS
Average Daily Package Volume (000s):

	U.S. Overnight Box		1,196			1,154		4	%		1,182			1,141		4	%
	U.S. Overnight Envelope		626			606		3	%		625			611		2	%
	U.S. Deferred		865			858		1	%		855			840		2	%
	Total U.S. Domestic Package		2,687			2,618		3	%		2,662			2,592		3	%
	International Priority		585			529		11	%		575			502		15	%
	International Domestic		354			338		5	%		339			315		8	%
	Total Average Daily Packages		3,626			3,485		4	%		3,576			3,409		5	%

Average Daily Freight Pounds (000s):

	U.S.		7,459			7,193		4	%		7,179			6,883		4	%
	International Priority		3,320			2,571		29	%		3,171			2,353		35	%
	International Airfreight		1,243			1,207		3	%		1,242			1,253		(1	%)
	Total Avg Daily Freight Pounds		12,022			10,971		10	%		11,592			10,489		11	%

YIELD
Revenue Per Package:

	U.S. Overnight Box	$	19.75		$	18.87		5	%	$	19.70		$	18.51		6	%
	U.S. Overnight Envelope		10.54			10.36		2	%		10.59			10.27		3	%
	U.S. Deferred		12.24			11.58		6	%		12.12			11.40		6	%
	Total U.S. Domestic Package		15.19			14.51		5	%		15.13			14.26		6	%
	International Priority		54.54			52.88		3	%		54.12			52.27		4	%
	International Domestic		7.39			7.09		4	%		7.22			7.07		2	%
	Composite Package Yield	$	20.77		$	19.62		6	%	$	20.65		$	19.19		8	%

Revenue Per Freight Pound:

	U.S.	$	1.13		$	1.08		5	%	$	1.15		$	1.07		7	%
	International Priority		2.08			1.98		5	%		2.07			1.93		7	%
	International Airfreight		0.88			0.83		6	%		0.87			0.77		13	%
	Composite Freight Yield	$	1.36		$	1.26		8	%	$	1.37		$	1.22		12	%

Average Full-Time Equivalents (000s)			132			126		5	%		132			126		5	%

1 – Current year includes a $66 million reserve for a legal matter.

FEDEX GROUND SEGMENT FINANCIAL AND OPERATING HIGHLIGHTS


Second Quarter Fiscal 2011
(Dollars in millions)
(Unaudited)

		Three Months Ended								Six Months Ended
		November 30								November 30
		2010			2009			%		2010			2009			%
FINANCIAL HIGHLIGHTS

Revenue		$	2,077		$	1,837		13	%	$	4,038		$	3,567		13	%

Operating Expenses:
	Salaries and employee benefits		318			288		10	%		625			570		10	%
	Purchased transportation		845			733		15	%		1,627			1,426		14	%
	Rentals		67			63		6	%		129			121		7	%
	Depreciation and amortization		83			83		“			165			168		(2	%)
	Fuel		3			2		50	%		4			3		33	%
	Maintenance and repairs		42			40		5	%		86			78		10	%
	Intercompany charges		227			196		16	%		448			380		18	%
	Other		196			194		1	%		371			374		(1	%)
	Total Operating Expenses		1,781			1,599		11	%		3,455			3,120		11	%

Operating Income		$	296		$	238		24	%	$	583		$	447		30	%

Operating Margin			14.3	%		13.0	%	1.3 pts			14.4	%		12.5	%	1.9 pts


OPERATING STATISTICS

Operating Weekdays			63			63		“			128			128		“

Average Daily Package Volume (000s)
	FedEx Ground		3,843			3,602		7	%		3,686			3,454		7	%
	FedEx SmartPost		1,484			1,265		17	%		1,287			1,135		13	%

Yield (Revenue Per Package)
	FedEx Ground	$	7.89		$	7.54		5	%	$	7.94		$	7.56		5	%
	FedEx SmartPost	$	1.72		$	1.57		10	%	$	1.70		$	1.50		13	%

FEDEX FREIGHT SEGMENT FINANCIAL AND OPERATING HIGHLIGHTS


Second Quarter Fiscal 2011
(Dollars in millions)
(Unaudited)

		Three Months Ended								Six Months Ended
		November 30								November 30
		2010			2009			%		2010			2009			%
FINANCIAL HIGHLIGHTS

Revenue		$	1,221		$	1,068		14	%	$	2,479		$	2,050		21	%

Operating Expenses:
	Salaries and employee benefits		584			513		14	%		1,184			1,020		16	%
	Purchased transportation		185			168		10	%		389			286		36	%
	Rentals		31			27		15	%		65			56		16	%
	Depreciation and amortization		62			46		35	%		110			101		9	%
	Fuel		133			104		28	%		264			198		33	%
	Maintenance and repairs		45			35		29	%		91			69		32	%
	Intercompany charges		108			98		10	%		217			150		45	%
	Impairment and other charges¹		67			“		NM			67			“		NM
	Other		97			89		9	%		199			180		11	%
	Total Operating Expenses		1,312			1,080		21	%		2,586			2,060		26	%

Operating Loss			($91	)		($12	)	NM			($107	)		($10	)	NM

Operating Margin			(7.5	%)		(1.1	%)	(6.4 pts)			(4.3	%)		(0.5	%)	(3.8 pts)


OPERATING STATISTICS

LTL Operating Weekdays			62			62		“			127			127		“

LTL Shipments Per Day (000s)			89.4			82.9		8	%		90.6			77.0		18	%
Weight Per LTL Shipment (lbs)			1,115			1,128		(1	%)		1,125			1,119		1	%
LTL Revenue/CWT		$	18.27		$	17.09		7	%	$	17.77		$	17.45		2	%

1 – Current year includes charges associated with the combination of FedEx Freight and FedEx National LTL operations effective January 30, 2011.