FedEx Net Income Surges 33 Percent; Annual Earnings Outlook Raised

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

-- Revenue of $8.09 billion, up 10% from $7.33 billion the previous year

-- Operating income of $790 million, up 32% from $600 million a year ago

-- Operating margin of 9.8%, up from last year's 8.2%

-- Net income of $471 million, up 33% from $354 million the previous year

"Customer demand for our broad portfolio of transportationservices, a disciplined pricing approach by FedEx and strongproductivity gains led to a sharp improvement in our operatingmargins," said Frederick W. Smith, chairman, president and chiefexecutive officer. "FedEx is also benefiting from solid economicgrowth year over year in the U.S. and Asian economies, which we expectto continue in 2006."

Last year's second quarter included two one-time items whichnegatively affected earnings by a net $0.06 per share: A one-timecharge of $48 million or $0.10 per diluted share related to thecompany's claim for compensation under the Air Transportation Safetyand System Stabilization Act, partially offset by a $0.04 per dilutedshare tax benefit resulting from the passage of the American JobsCreation Act of 2004.

Total combined average daily package volume at FedEx Express andFedEx Ground grew 3% year over year for the quarter, led by improvedinternational express package growth. Yield management actions in U.S.deferred services at FedEx Express to improve profitability boostedyields while resulting in lower volume. FedEx Ground volumes wereweaker than expected, but strengthened in the last two weeks ofNovember and continue to strengthen in December. The higher FedExGround growth trend is expected to continue in the second half of thefiscal year.

Outlook

FedEx expects third quarter earnings to be $1.15 to $1.30 perdiluted share. The company increased its earnings guidance for theyear to $5.45 to $5.70 per diluted share from its previous guidance of$5.25 to $5.50 per diluted share, which includes the net effect of a$0.15 per share lease accounting charge in the first quarter.Excluding the impact of the lease accounting charge, earnings for theyear are expected to be $5.60 to $5.85 per diluted share. The capitalspending forecast for fiscal 2006 remains approximately $2.5 billion.

"We exceeded our original forecast for the second quarter due tooutstanding operational performance and the deferral of certainadvertising and promotional expenses to the second half of the fiscalyear," said Alan B. Graf, Jr., executive vice president and chieffinancial officer. "Our increased earnings guidance for the full yearreflects confidence in our ability to continue executing our businessstrategy, manage our cost structure and leverage sustained economicgrowth."

FedEx Express Segment

For the second quarter, the FedEx Express segment reported:

-- Revenue of $5.37 billion, up 11% from last year's $4.83 billion

-- Operating income of $476 million, up 43% from $333 million a year ago

-- Operating margin of 8.9%, up from 6.9% the previous year

FedEx International Priority (IP) revenue grew 14% for thequarter. IP average daily package volume grew 8%, due to strong growthin Asia and Europe and continuing growth in U.S. export. IP revenueper package grew 5%, primarily due to higher fuel surcharges. U.S.domestic express package revenue increased 8%, as U.S. domesticrevenue per package increased 7% and U.S. domestic volume increased1%. The increase in U.S. domestic revenue per package was mainlydriven by higher fuel surcharges and an increase in average rate perpound.

FedEx Express operating margin improved significantly year overyear, benefiting from solid growth in IP revenue and significantimprovement in productivity. Also, last year's operating margin wasnegatively affected by the one-time charge related to the company'sclaim for compensation under the Air Transportation Safety and SystemStabilization Act.

FedEx Ground Segment

For the second quarter, the FedEx Ground segment reported:

-- Revenue of $1.31 billion, up 11% from last year's $1.17 billion

-- Operating income of $163 million, up 21% from $135 million a year ago

-- Operating margin of 12.5%, up from 11.5% the previous year

FedEx Ground average daily package volume grew 4% year over yearin the second quarter. Yield improved 6% primarily due to thereintroduction of a fuel surcharge, higher extra service revenue andthe impact of the January 2005 general rate increase.

The operating margin improvement resulted from higher yields,improved field productivity and stringent expense controls at FedExGround, offset in part by investments in new technology and thecompany's capacity expansion program. Additionally, in the previousyear's second quarter FedEx Supply Chain Services recorded a $10million charge for the termination of a vendor agreement.

FedEx Freight Segment

For the second quarter, the FedEx Freight segment reported:

-- Revenue of $932 million, up 14% from last year's $820 million

-- Operating income of $135 million, up 32% from $102 million a year ago

-- Operating margin of 14.5%, up from 12.5% the previous year

Less-than-truckload (LTL) yield improved 8% year over year,reflecting incremental fuel surcharges and higher rates. Average dailyLTL shipments increased 5% year over year. The growth in yield andshipments, combined with system productivity gains, led to an increasein operating margin.

LTL shipment growth is benefiting from increasing demand forfeatures such as FedEx Freight Advance Notice, launched in September2005, and the company's no-fee money-back guarantee. These featuresenhance FedEx Freight's leadership position in the regional LTL marketand further differentiate it from the competition by providingcertainty, reliability and unprecedented shipment information.

FedEx Kinko's Segment

For the second quarter, the FedEx Kinko's segment reported:

-- Revenue of $528 million, up 1% from last year's $524 million

-- Operating income of $16 million, down 45% from $29 million a year ago

-- Operating margin of 3.0%, down from 5.7% the previous year

The FedEx Kinko's revenue increase for the quarter was due tocontinued growth from package acceptance revenues and the benefit ofthe conversion of certain FedEx World Service Centers to FedEx Kinko'sShip Centers. This growth was mostly offset by a decline in copyrevenues, due in part to a competitive pricing environment.

Operating margin was negatively affected by the decline in copyproduct line revenues and costs associated with internal technologyenhancements and product offering initiatives.

Corporate Overview

FedEx Corp. (NYSE: FDX) provides customers and businessesworldwide with a broad portfolio of transportation, e-commerce andbusiness services. With annual revenues of $31 billion, the companyoffers integrated business applications through operating companiescompeting collectively and managed collaboratively, under therespected FedEx brands. Consistently ranked among the world's mostadmired and trusted employers, FedEx inspires its more than 260,000employees and contractors to remain "absolutely, positively" focusedon safety, the highest ethical and professional standards and theneeds of their customers and communities. For more information, visitwww.fedex.com.

For free B-roll/video content about FedEx please log ontowww.thenewsmarket.com/fedex to preview and request video. You canreceive broadcast-standard video digitally or by tape from this site.Registration and video is free to the media.

Additional information and operating data are contained in thecompany's annual report, Form 10-K, Form 10-Qs and second quarterFY2006 Statistical Book. These materials, as well as a Webcast of theearnings release conference call to be held at 8:30 a.m. EST onDecember 21, are available on the company's Web site atwww.fedex.com/us/investorrelations. A replay of the conference callWebcast will be posted on our Web site following the call.

Certain statements in this press release may be consideredforward-looking statements, such as statements relating tomanagement's views with respect to future events and financialperformance. Such forward-looking statements are subject to risks,uncertainties and other factors which could cause actual results todiffer materially from historical experience or from future resultsexpressed or implied by such forward-looking statements. Potentialrisks and uncertainties include, but are not limited to, economicconditions in the global markets in which we operate, the effect ofadverse weather on our operations, new U.S. domestic or internationalgovernment regulation, the impact from any terrorist activities orinternational conflicts, our ability to effectively operate, integrateand leverage the FedEx Kinko's business, the impact of changes in fuelprices and currency exchange rates, our ability to match capacity toshifting volume levels and other factors which can be found in FedExCorp.'s and its subsidiaries' press releases and filings with the SEC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURE
TO GAAP FINANCIAL MEASURE

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 the one-time, non-cash
lease accounting charge from our full year guidance will allow more
accurate comparisons to prior periods of our expected operating
performance in fiscal 2006. As required by SEC rules, the table below
presents a reconciliation of our presented non-GAAP measure to the
most directly comparable GAAP measure.


FY 2006 Diluted
EPS Guidance
----------------
Non-GAAP Measure $5.60 to $5.85

First Quarter Lease Accounting Charge,
Net of Variable Compensation and
Income Taxes (0.15)
------
GAAP Measure $5.45 to $5.70
================






FEDEX CORP. FINANCIAL HIGHLIGHTS

Second Quarter Fiscal 2006
(In millions, except earnings per share and FTEs)
(Unaudited)

Three Months Ended Six Months Ended
November 30 November 30
--------------------- ----------------------
2005 2004 % 2005 2004 %
------- ------- ---- -------- ------- ----
Revenue:
FedEx Express
segment $5,370 $4,834 11% $10,492 $9,450 11%
FedEx Ground segment 1,307 1,174 11% 2,526 2,247 12%
FedEx Freight segment 932 820 14% 1,824 1,627 12%
FedEx Kinko's
segment 528 524 1% 1,045 1,014 3%
Other & eliminations (47) (18) NM (90) (29) NM
------- ------- -------- -------
Total Revenue 8,090 7,334 10% 15,797 14,309 10%

Operating Expenses:
Salaries and
employee benefits 3,081 2,930 5% 6,143 5,850 5%
Purchased
transportation 812 747 9% 1,583 1,428 11%
Rentals and landing
fees 584 577 1% 1,249 1,128 11%
Depreciation and
amortization 386 363 6% 756 723 5%
Fuel 891 592 51% 1,619 1,075 51%
Maintenance and
repairs 445 422 5% 913 850 7%
Airline Stabilization
Act charge -- 48 NM -- 48 NM
Other 1,101 1,055 4% 2,160 2,028 7%
------- ------- -------- -------
Total Operating
Expenses 7,300 6,734 8% 14,423 13,130 10%

Operating Income:
FedEx Express segment 476 333 43% 761 643 18%
FedEx Ground segment 163 135 21% 311 282 10%
FedEx Freight segment 135 102 32% 270 205 32%
FedEx Kinko's segment 16 29 (45%) 32 48 (33%)
Other & eliminations -- 1 NM -- 1 NM
------- ------- -------- -------
Total Operating
Income 790 600 32% 1,374 1,179 17%

Other Income (Expense):
Interest, net (30) (38) (21%) (54) (77) (30%)
Other, net -- (8) NM (11) (14) (21%)
------- ------- -------- -------
Total Other Income
(Expense) (30) (46) (35%) (65) (91) (29%)

Pretax Income 760 554 37% 1,309 1,088 20%

Provision for Income
Taxes 289 200 45% 499 404 24%
------- ------- -------- -------

Net Income $471 $354 33% $810 $684 18%
======= ======= ======== =======

Diluted Earnings Per
Share $1.53 $1.15 33% $2.63 $2.23 18%
======= ======= ======== =======

Weighted Average
Common and Common
Equivalent Shares 308 307 0% 308 306 1%

Capital Expenditures $655 $781 (16%) $1,326 $1,175 13%

Average Full-Time
Equivalents (FTEs in
thousands) 222 216 3% 220 214 3%


FEDEX CORP. CONDENSED CONSOLIDATED BALANCE SHEETS

Second Quarter Fiscal 2006
(In millions)

Nov. 30, 2005
(Unaudited) May 31, 2005
------------ ------------
ASSETS
--------

Current Assets:
Cash and cash equivalents $786 $1,039
Other current assets 4,506 4,230
-------- --------
Total Current Assets 5,292 5,269

Net Property and Equipment 10,275 9,643

Other Long-Term Assets 5,644 5,492
-------- --------

$21,211 $20,404
======== ========


LIABILITIES AND STOCKHOLDERS' INVESTMENT
----------------------------------------------

Current Liabilities:
Current portion of long-term debt $ 493 $ 369
Other current liabilities 4,298 4,365
-------- -------
Total Current Liabilities 4,791 4,734

Long-Term Debt, Less Current Portion 2,203 2,427

Other Long-Term Liabilities 3,809 3,655

Total Common Stockholders' Investment 10,408 9,588
-------- --------

$21,211 $20,404
======== ========

FEDEX CORP. CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS

Second Quarter Fiscal 2006
(In millions)
(Unaudited)

Six Months Ended
November 30
-----------------
2005 2004
------ -------
Operating Activities:
Net income $810 $684
Noncash charges (credits):
Depreciation and amortization 754 723
Other, net 200 (7)
Changes in operating assets and liabilities, net (629) (161)
------ -------

Net cash provided by operating activities 1,135 1,239

Investing Activities:
Capital expenditures (1,326) (1,175)
Business acquisition -- (122)
Proceeds from asset dispositions 37 5
------ -------

Net cash used in investing activities (1,289) (1,292)

Financing Activities:
Dividends paid (48) (42)
Other, net (51) (12)
------ -------

Net cash used in financing activities (99) (54)
------ -------

Net decrease in cash and cash equivalents (253) (107)

Cash and cash equivalents at beginning of period 1,039 1,046
------ -------
Cash and cash equivalents at end of period $786 $939
======= =======


FEDEX EXPRESS SEGMENT FINANCIAL AND OPERATING HIGHLIGHTS

Second Quarter Fiscal 2006
(Dollars in millions)
(Unaudited)

Three Months Ended Six Months Ended
November 30 November 30
------------------------------------------
FINANCIAL HIGHLIGHTS 2005 2004 % 2005 2004 %
--------------------------- ------- ------- ---- -------- ------- ----

Revenue $5,370 $4,834 11% $10,492 $9,450 11%

Operating Expenses:
Salaries and employee
benefits 1,959 1,873 5% 3,930 3,762 4%
Purchased transportation 236 206 15% 477 397 20%
Rentals and landing fees 409 399 3% 892 782 14%
Depreciation and
amortization 203 199 2% 396 399 (1%)
Fuel 760 513 48% 1,388 935 48%
Maintenance and repairs 339 322 5% 700 647 8%
Airline Stabilization Act
charge -- 48 NM -- 48 NM
Intercompany charges 383 374 2% 741 736 1%
Other 605 567 7% 1,207 1,101 10%
------- ------- -------- -------
Total Operating Expenses 4,894 4,501 9% 9,731 8,807 10%
------- ------- -------- -------

Operating Income $476 $333 43% $761 $643 18%
======= ======= ======== =======

Operating Margin 8.9% 6.9% 7.3% 6.8%

OPERATING STATISTICS
---------------------------

Operating Weekdays 63 63 -- 128 128 --

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

U.S. Overnight Box 1,211 1,179 3% 1,195 1,164 3%
U.S. Overnight Envelope 702 663 6% 707 663 7%
U.S. Deferred 886 941 (6%) 891 901 (1%)
------- ------- -------- -------
Total U.S. Domestic
Package 2,799 2,783 1% 2,793 2,728 2%
International Priority 480 443 8% 462 430 7%
------- ------- -------- -------
Total Average Daily
Packages 3,279 3,226 2% 3,255 3,158 3%
======= ======= ======== =======

Average Daily Freight Pounds (000s):

U.S. 9,544 9,008 6% 9,209 8,605 7%
International 2,283 1,874 22% 2,159 1,867 16%
------- ------- -------- -------
Total Avg Daily
Freight Pounds 11,827 10,882 9% 11,368 10,472 9%
======= ======= ======== =======

YIELD
-------------------------
Revenue Per Package:

U.S. Overnight Box $21.03 $19.81 6% $20.69 $19.59 6%
U.S. Overnight Envelope 10.86 10.33 5% 10.71 10.27 4%
U.S. Deferred 12.56 11.51 9% 12.16 11.54 5%
------- ------- -------- -------
Total U.S. Domestic
Package 15.80 14.74 7% 15.44 14.67 5%
International Priority 58.14 55.13 5% 57.36 54.04 6%
------- ------- -------- -------
Composite Package Yield $21.99 $20.28 8% $21.39 $20.03 7%
======= ======= ======== =======

Revenue Per Freight Pound:

U.S. $0.94 $0.83 13% $0.91 $0.81 12%
International 0.81 0.77 5% 0.80 0.76 5%
------- ------- -------- -------
Composite Freight Yield $0.91 $0.82 11% $0.89 $0.80 11%
======= ======= ======== =======

Average Full-Time
Equivalents (000s) 124 122 2% 125 122 2%


FEDEX GROUND SEGMENT FINANCIAL AND OPERATING HIGHLIGHTS

Second Quarter Fiscal 2006
(Dollars in millions)
(Unaudited)

Three Months Ended Six Months Ended
November 30 November 30
-------------------- --------------------
2005 2004 % 2005 2004 %
------- ------- ---- ------- ------- ----
FINANCIAL HIGHLIGHTS
----------------------------

Revenue $1,307 $1,174 11% $2,526 $2,247 12%

Operating Expenses:
Salaries and employee
benefits 230 213 8% 451 410 10%
Purchased transportation 506 456 11% 972 866 12%
Rentals 36 32 13% 67 58 16%
Depreciation and amortization 53 43 23% 103 83 24%
Fuel 27 13 108% 45 20 125%
Maintenance and repairs 28 26 8% 57 52 10%
Intercompany charges 129 119 8% 249 234 6%
Other 135 137 (1%) 271 242 12%
------- ------- ------- -------
Total Operating Expenses 1,144 1,039 10% 2,215 1,965 13%
------- ------- ------- -------

Operating Income $163 $135 21% $311 $282 10%
======= ======= ======= =======

Operating Margin 12.5% 11.5% 12.3% 12.6%


OPERATING STATISTICS
----------------------------

Operating Weekdays 63 63 -- 128 128 --

Average Daily Package
Volume(1) (000s) 2,843 2,725 4% 2,712 2,584 5%
Yield (Revenue Per
Package)(1) $6.90 $6.48 6% $6.91 $6.51 6%

Note 1: Package statistics exclude FedEx SmartPost.


FEDEX FREIGHT SEGMENT FINANCIAL AND OPERATING HIGHLIGHTS

Second Quarter Fiscal 2006
(Dollars in millions)
(Unaudited)

Three Months Ended Six Months Ended
November 30 November 30
--------------------- ---------------------
2005 2004 % 2005 2004 %
------- ------- ---- ------- ------- ----
FINANCIAL HIGHLIGHTS
---------------------------

Revenue $932 $820 14% $1,824 $1,627 12%

Operating Expenses:
Salaries and employee
benefits 442 406 9% 881 816 8%
Purchased transportation 81 88 (8%) 153 172 (11%)
Rentals and landing fees 25 26 (4%) 49 51 (4%)
Depreciation and
amortization 29 26 12% 59 50 18%
Fuel 104 65 60% 186 119 56%
Maintenance and repairs 30 31 (3%) 58 62 (6%)
Intercompany charges 9 7 29% 18 13 38%
Other 77 69 12% 150 139 8%
------- ------- ------- -------
Total Operating Expenses 797 718 11% 1,554 1,422 9%
------- ------- ------- -------

Operating Income $135 $102 32% $270 $205 32%
======= ======= ======= =======

Operating Margin 14.5% 12.5% 14.8% 12.6%


OPERATING STATISTICS
---------------------------

LTL Operating Weekdays 62 62 -- 127 127 --

LTL Shipments Per Day (000s) 68 65 5% 67 65 3%
Weight Per LTL
Shipment (lbs) 1,161 1,130 3% 1,147 1,129 2%
LTL Revenue/CWT $16.80 $15.55 8% $16.68 $15.26 9%


FEDEX KINKO'S SEGMENT FINANCIAL HIGHLIGHTS

Second Quarter Fiscal 2006
(Dollars in millions)
(Unaudited)

Three Months Ended Six Months Ended
November 30 November 30
------------------- ----------------------
2005 2004 % 2005 2004 %
------ ------ ---- ------ ------- ----
FINANCIAL HIGHLIGHTS
------------------------------

Revenue $528 $524 1% $1,045 $1,014 3%

Operating Expenses:
Salaries and employee
benefits 190 186 2% 376 368 2%
Rentals 99 107 (7%) 201 209 (4%)
Depreciation and amortization 37 32 16% 73 64 14%
Maintenance and repairs 19 17 12% 37 34 9%
Intercompany charges 6 3 100% 10 6 67%
Other operating expenses:
Supplies, including paper
and toner 70 71 (1%) 137 136 1%
Other 91 79 15% 179 149 20%
----- ----- ------- -------
Total Operating Expenses 512 495 3% 1,013 966 5%
----- ----- ------- -------

Operating Income $16 $29 (45%) $32 $48 (33%)
===== ===== ======= =======

Operating Margin 3.0% 5.7% 3.1% 4.8%

Note: Certain prior period amounts have been reclassified to
conform to the current period's presentation.