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FedEx Express Operating Margin Improves on Lower Costs and Strong International Revenue

MEMPHIS, Tenn., March 17, 2004 ... FedEx Corporation (NYSE: FDX) today reported earnings of $0.68 per diluted share for the quarter ended February 29, including $0.03 per diluted share of costs associated with the previously announced business realignment through early retirement and severance programs. Excluding these costs, earnings for the third quarter were $0.71 per diluted share. Earnings were $0.49 per diluted share a year ago.

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

Q3 Fiscal 2004
	As Reported (GAAP)	YOY %	Before Realignment Costs	YOY %	Q3 Fiscal 2003 As Reported (GAAP)
Revenue	$6.06 billion	9	$6.06 billion	9	$5.55 billion
Operating Income	$372 million	38	$386 million	43	$269 million
Net Income	$207 million	41	$216 million	47	$147 million
Diluted EPS	$0.68	39	$0.71	45	$0.49

"Our revenue growth accelerated, reflecting a strengthening worldwide economy and successful execution of our business strategy, highlighted by the strong performance of our FedEx International Priority^(R) service" said Alan B. Graf, Jr., executive vice president and chief financial officer. "In addition, substantial cost savings from our business realignment programs at FedEx Express are resulting in meaningful improvement in our Express margins."

The third quarter pretax cost of the business realignment programs was $14 million. Approximately $65 million of savings were realized in the third quarter, reflected primarily in lower ongoing salaries and employee benefits costs. The company expects the savings from these initiatives to be $50 million to $60 million in the fourth quarter and the costs to be approximately $10 million. Related savings are expected to be $230 million to $240 million per year in fiscal 2005 and beyond.

On February 12, 2004, FedEx completed the $2.4 billion acquisition of Kinko's, Inc. from Clayton, Dubilier & Rice, Inc. (which owned the majority of Kinko's outstanding shares) and others. During the third quarter, Kinko's contributed approximately $100 million of revenue and $0.01 per diluted share of earnings, as its results were only included for 18 days in the quarter. Kinko's will be reported as the company's fourth operating segment beginning with the fourth quarter.

For the third consecutive year, FedEx ranked in the "Top 10" of FORTUNE magazine's "America's Most Admired Companies" and "World's Most Admired Companies" lists and in the top ten of the 2003 Harris Interactive/Reputation Institute's annual corporate reputation survey published by The Wall Street Journal. FedEx is the only transportation company and one of very few companies to rank this highly in all three reputation surveys.

"At the heart of our strong reputation is our relentless commitment to delivering superior service for customers, generating outstanding financial returns for shareholders, maintaining the highest ethical standards, safeguarding our environment and being a great place to work," said Frederick W. Smith, chairman, president and chief executive officer.

Outlook

Earnings are expected to be $1.15 to $1.25 per diluted share in the fourth quarter, excluding the costs of the company's business realignment activities, compared to $0.92 per diluted share a year ago. Fiscal 2004 earnings are expected to be $3.35 to $3.45 per diluted share, excluding business realignment costs and a one-time tax benefit recorded in the first quarter. Capital expenditures for fiscal 2004 are now expected to be approximately $1.4 billion, which is $200 million below the previous forecast and below fiscal 2003 levels. Guidance for fiscal 2005 earnings will be provided in conjunction with the company's investors and lenders meeting on April 8, 2004.

FedEx Express Segment

For the third quarter, the FedEx Express segment reported:

Q3 Fiscal 2004
	As Reported (GAAP)	YOY %	Before Realignment Costs	YOY %	Q2 Fiscal 2003 As Reported (GAAP)
Revenue	$4.37 billion	7	$4.37 billion	7	$4.09 billion
Operating Income (Loss)	$218 million	68	$230 million	77	$130 million
Operating Margin	5.0%		5.3%		3.2%

FedEx Express segment operating income improved 77% year over year before realignment costs, benefiting from ongoing cost control efforts including early retirement and severance savings and from revenue growth. Operating income improved despite higher employee compensation and benefits and maintenance costs.

FedEx International Priority (IP) revenue grew 21% for the quarter, as IP revenue per package grew 10%, primarily due to an increase in average weight per package and favorable exchange rate differences. IP average daily package volume also grew 10%. Asia continued to be a growth engine, with volume increasing 22% year over year, while volume growth rates also increased in Europe, Latin America and U.S. export. Worldwide, FedEx Express average daily package volume grew 1% year over year. U.S. domestic express average daily package volume was flat year over year, while U.S. domestic package yield increased 1%.

On March 16, 2004, FedEx Express entered into a fourth addendum to its transportation agreement with the U.S. Postal Service, allowing FedEx Express to continue carrying incremental pounds of mail through November 30, 2004 at higher committed volumes than required under the original agreement.

FedEx Ground Segment

For the third quarter, the FedEx Ground segment reported:

• Revenue of $960 million, up 8% from last year's $886 million
• Operating income of $112 million, up 3% from $109 million a year ago
• Operating margin was 11.6%, down from 12.3% the previous year

Average daily package volume grew 6% in the third quarter, up from 1% and 3% growth in the first and second quarters, respectively, driven by growth in FedEx Home Delivery shipments. Yield improved 4% primarily due to a January 2004 general rate increase and an increase in extra services revenue, partially offset by higher customer discounts and the elimination of the fuel surcharge in January. The FedEx Ground segment operating margin was negatively affected by an operating loss at FedEx Supply Chain Services.

FedEx Freight Segment

For the third quarter, the FedEx Freight segment reported:

• Revenue of $630 million, up 11% from last year's $568 million
• Operating income of $37 million, up 32% from $28 million a year ago
• Operating margin was 5.9%, up from 4.9% the previous year

FedEx Freight less-than-truckload (LTL) yield improved 6% year over year due to the impact of a 5.9% general rate increase on June 30, 2003, favorable contract renewals and growth in its interregional freight service. Average daily LTL shipments increased 4% compared to last year's third quarter, which is a continuation of a trend that began at the end of the second quarter. Operating income was up 32% compared to the previous year due to the impact of higher revenue and cost management efforts.

FedEx Freight continues to improve its market position, with service at historically high levels and the successful launch of its money-back guarantee. The company has also increased capacity at a number of key locations to better meet growing customer demand.

Corporate Overview

FedEx Corp. (NYSE: FDX) provides customers and businesses worldwide with the broadest portfolio of transportation, e-commerce and business services. With annual revenues of $25 billion, the company offers integrated business applications through operating companies competing collectively and managed collaboratively, under the respected FedEx and Kinko's brands. Consistently ranked among the world's most admired and trusted employers, FedEx inspires its more than 240,000 employees and contractors 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 fedex.com.

Additional information and operating data are contained in the company's annual report, Form 10-K, Form 10-Qs and third quarter FY2004 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 March 17, 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.

Media Contact: Jess Bunn 901-818-7463
Investor Contact: Jim Clippard 901-818-7468
Home Page: fedex.com

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 the impact of business realignment costs from our third quarter results and from our earnings guidance will allow more accurate comparisons to prior periods of our year-to-date and expected operating performance in fiscal 2004 and beyond. As required by SEC rules, the tables below present a reconciliation of our presented non-GAAP measures to the most directly comparable GAAP measures.