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September 18, 1997

Federal Express Corporation First Quarter Fiscal 1998 Financial Results

FedEx More Than Doubles First Quarter Net Income

HONG KONG, Sept 18, 1997 -- Federal Express Corp. net income for the quarter ended August 31 more than doubled from the same quarter last year. Net income was US$143.3 million compared to last year's first quarter net income of US$62.0 million. Earnings per share increased to US$1.22 per share from US$0.54 per share a year ago.

Revenues for the quarter were US$3,297.2 million, 22% higher than last year's US$2,692.3 million. Operating income increased to US$264.2 million from US$129.9 million, and pretax income rose to US$247.0 million from US$107.7 million a year ago.

"These excellent financial results are directly tied to the outstanding performance of our 137,000 motivated employees who delivered more than 9,500,000 extra packages during the UPS strike," said Chairman, President and Chief Executive Officer Frederick W. Smith. "FedEx was the global express distribution leader going into the quarter, and our leadership position is even stronger now."

International operating income for the first quarter was US$23.2 million on international segment revenues of US$867.4 million. In last year's first quarter, the international segment reported operating income of US$3.7 million on revenues of US$737.8 million.

"Our international operating profit increased six-fold from last year's first quarter due to robust 18% volume growth in our premium FedEx International Priority (IP) service coupled with a 3% increase in IP's revenue per package," said Executive Vice President and Chief Financial Officer Alan B. Graf, Jr. "We enhanced our unparalleled global network with the Sept. 1 launch of the industry's only overnight service from Osaka to Memphis and an around the world flight linking key markets in the U.S., Europe, the Middle East and Asia."

The company's U.S. domestic operating income was US$241.0 million on revenues of US$2,429.8 million, compared to operating income of US$126.2 million on revenues of US$1,954.5 million in last year's first quarter. Last year's first quarter included US$28 million attributable to the temporary expiration of the federal excise tax on the transportation of property by air.

"It is difficult to precisely analyze the impact of the additional volume during the 12 operating days of the UPS strike. However, we estimate approximately 15% of the 800,000 extra packages carried per day have been retained. The volume not retained contributed approximately US$150 million in U.S. domestic revenues, or US$0.25 to US$0.30 net per share to the quarter's earnings," said Graf. "We had good momentum at the start of the quarter even before the strike. The results were within the company's targets after considering the effect of this quarter's events, including the strike, the implementation of distance-based pricing and the roll-out of FedEx Express Saver^®."

Sales of aircraft noise-reduction kits contributed an incremental US$22 million to the company's operating income compared to last year's first quarter.

A net gain of US$17 million was also realized from the insurance settlement on an MD11 aircraft destroyed in an accident in July. The gain was almost evenly split between operating income and non-operating income. The effect of this gain was partially offset by an unrelated US$9 million addition to an operating expense reserve for the disposition of Boeing 747-200 aircraft. The net combined effect of these items contributed approximately US$0.03 per share to the quarter's earnings.

The 2% fuel surcharge on U.S. express services and IP packages originating in the U.S. was lifted August 1, 1997.

FedEx currently serves the Asia Pacific market with approximately 4,300 employees serving more than 30 countries and territories. The company provides the most extensive trans-Pacific air lift of any major competitor. Operating its own wide-bodied MD-11, DC-10 and A310 aircraft, FedEx offers over 250 flights per week to the following locations: Beijing, Hong Kong, Kaohsiung, Kuala Lumpur, Manila, Osaka, Penang, Seoul, Shanghai, Singapore, Subic Bay, Taipei, and Tokyo, as well as destinations in the U.S.

Federal Express is the world's largest express transportation company, providing fast and reliable services for more than 2.9 million items in 212 countries each working day. The company employs approximately 137,000 people and has more than 42,500 drop-off locations, 590 aircraft and 38,500 vehicles in its integrated global network. FedEx maintains electronic connections with more than 750,000 users via FedEx PowerShip^®, FedEx Ship^® and FedEx interNetShip^SM. Federal Express reported revenues of US$11.5 billion for its fiscal year ended May 31, 1997.

First Quarter Fiscal 1998
(In millions, except earnings per share and operating data)

Three Months Ended
August 31