Federal Express 2001 Annual Report Download - page 8

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MESSAGE FROM THE CFO
FedEx Corporation’s financial performance improved significantly
during the first half of fiscal year 2001 as our new go-to-market
strategies generated volume and yield growth at FedEx Express
and FedEx Ground. The second half of the year was more finan-
cially challenging, however, as our package business was
severely impacted by a rapidly slowing economy, particularly in
the high-tech and durable goods sectors. Despite these adverse
economic conditions, we made considerable progress toward
our financial goal of becoming cash flow positive. In fact, exclud-
ing the costs associated with our acquisition of American
Freightways, we attained net cash flow positive status last year
as we pursued the following strategies:
Portfolio Expansion
The acquisition of American Freightways and the formation of
FedEx Freight expanded and enhanced our already formidable
arsenal of supply chain solutions. Teamed with Viking Freight,
the largest Western regional less-than-truckload carrier,
American Freightways provides the perfect extension of our
increasingly popular less-than-truckload offering to virtually all
U.S. ZIP codes.
Yield Improvement
We continued to execute good yield management strategies in
FY01 even with a weakening economy and a slowdown in volume
growth. Package and freight yields improved as we continued
to manage our rate levels, customer diversity and volume and
freight mix. Since our yields, especially at FedEx Express, are not
quite as high as our primary competitor, we still have substantial
opportunity to leverage our industry-leading service offerings
and powerful and trusted brand to grow yields, revenues and
margins as the economy improves.
Cost Containment
We are proud that we were able to contain costs last year while
still providing the best service in the industry. Cost reduction
programs included a freeze on most hiring, substantially reduc-
ing bonus incentive compensation related to profitability and
a comprehensive reduction in discretionary expenses at all
operating companies. These steps will remain in place until our
profitability returns to acceptable levels.
Capital Discipline
For the third year in a row, we managed to lower our capital
expenditures as both a percentage of revenue and on an
absolute basis, while at the same time expanding our network
and improving service. Because of the sluggish growth of the
economy this past year, we thoroughly reviewed our long-term
capacity needs. As a result, we adjusted our aircraft programs to
better match capacity to customer demand as well as maximize
profitability now and in the future.
The outlook for FY02 is certainly challenging, but we will con-
tinue our efforts to penetrate the small- and medium-sized
customer base, develop our new alliance with the U.S. Postal
Service, expand our FedEx Home Delivery service and promote
our new FedEx Freight network. All the while, we will remain
focused on cost containment and capital expenditure discipline
in order to achieve positive cash flow. With the unmatched serv-
ice of dedicated employees and contractors worldwide, we will
continue to successfully overcome the challenges of today’s envi-
ronment and position our company for future growth and superior
margins, returns and cash flows as the economy recovers.
Alan B. Graf, Jr.
Executive Vice President and Chief Financial Officer