Good day, everyone, and welcome to the FedEx Corporation First Quarter Fiscal Year 2017 Earnings Conference Call. Today’s call is being recorded. At this time, I will turn the call over to Mickey Foster, Vice President of Investor Relations for FedEx Corporation. Please go ahead.

Good afternoon. Welcome to FedEx Corporation's first quarter earnings conference call. First quarter earnings release, statistical book, earnings presentation slides are on our Web site at fedex.com. This call is being broadcast from our Web site and the replay and presentation slides will be available for about one year. Written questions are welcome via email or through the webcast console. When you send your questions, please include your full name and contact information. The email address is ir@fedex.com. Preference will be given to inquiries of a long-term strategic nature. I want to remind all listeners that FedEx Corporation desires to take advantage of the Safe Harbor Provisions of the Private Securities Litigation Reform Act. Certain statements in this conference call such as projections regarding future performance may be considered forward-looking statements within the meaning of the Act. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For additional information on these factors, please refer to our press releases and filings with the SEC. Please refer to the Investor Relations portion of our Web site at fedex.com for a reconciliation of the non-GAAP financial measures discussed on this call to the mostly directly comparable GAAP measures. Joining us on the call today are Fred Smith, Chairman; Alan Graf, Executive Vice President and CFO; Mike Glenn, President and CEO of FedEx Services; Chris Richards, Executive Vice President, General Counsel and Secretary; Rob Carter, Executive Vice President, FedEx Information Services and CIO who is joining us on the conference call line; Dave Bronczek, President and CEO of FedEx Express; Henry Maier, President and CEO of FedEx Ground; Mike Ducker, President and CEO of FedEx Freight. With that, Fred Smith will now share his views on the quarter.

Thank you, Mickey. Welcome to our discussion of results for the first quarter of fiscal 2017. Managing our operating companies as a portfolio of solutions helped FedEx achieve strong financial and operating results in the quarter, especially given the global economy's continued low growth. Mike Glenn will offer a more detailed look at economic conditions and FedEx revenue growth later in today's call. We expect FY '17 revenue and earnings to increase driven by volume growth and improved base yields at all our core transportation companies. The integration of TNT Express, which includes more than 200 countries is proceeding smoothly and on schedule. The level of team members' engagement is outstanding and very much appreciated. More than 20 teams are working in operations, customer solutions, personnel, IT, finance, legal, security, and other areas to positively transform FedEx, TNT into a seamless worldwide operation. Alan Graf will provide a more comprehensive update, including our target, to exit the end of the four-year integration process in fiscal 2020 with annual synergies of $750 million [indiscernible]. The integration process continues. I assure you FedEx will maintain our high levels of customer service across all our operating companies with our commitment to the Purple Promise, which states simply, “I will make every FedEx experience outstanding.” And let me thank hundreds of thousands of FedEx team members in every corner of the globe who do just that every day. Before I turn the call over to Mike, let me reiterate we are committed to improving margins, earnings per share, cash flows, and returns. Now Mike and then Alan will provide their insights. Mike?

Thanks, Fred. I'll open with an economic update and outlook and then discuss our performance and business conditions in each segment, including revenue, volume, yield, and provide some commentary on broader industry trends and our plans to what is expected to be another record-breaking holiday shopping season. On the economic front, we see moderate growth in the global economy. Our U.S. GDP growth forecast is 1.6% for calendar '16, 20 basis points lower than our last forecast in the last quarter and 2.3% for calendar '17 led by gains in consumer spending. Our global GDP growth forecast is 2.2% for calendar '16, 10 basis points below last quarter and 2.6% for calendar '17. We expect industrial production to decline 0.7% in calendar '16, 10 basis points lower than last quarter and increase 2.2% next year. Now I'll review revenue volume and yield trends by segment. U.S. Domestic Express package revenue grew 3% in Q1 driven by growth in both volume and yield. Excluding the impact of fuel, Domestic Express revenue grew 3.8% year-over-year. Package volume grew 1% year-over-year in the quarter driven by strong overnight volume growth. Yield per package increased 1% year over year despite lower fuel surcharges. Excluding [ph] the impact of fuel, year-over-year Express Domestic package yield grew 2.5%, primarily due to rate and discount. FedEx International Express package revenue decreased 1% year-over-year in Q1 but increased 1% if you exclude the impact of fuel. FedEx international priority volume decreased 1% while international economy volume grew 1%. International export package yield decreased 1%. If you exclude the impact of fuel, international export package yield increased 1.4% primarily driven by the positive impact of rate and discount changes, which outweighed the negative impact of exchange rates. FedEx Ground revenue increased 12% year-over-year in Q1 and increased 12.6% if…

Good afternoon, everyone. Thank you for your comments, Mike. Thanks to the FedEx team for delivering strong first quarter results. For FedEx Corporation, adjusted EPS climbed 20% to $2.90 per share. Revenues increased 19% to 14.7 billion with the addition of TNT Express. Consolidated adjusted operating margin was 9.3%. We continue to increase profits while investing in the business. First quarter results improved due to higher operating income at Express, base yields improved and expense growth was constrained and at Ground where volume and yield grew. Offsetting factors include a higher network expansion costs at Ground. These adjusted numbers exclude the integration and restructuring program costs, intangible asset amortization of TNT Express. Ground volume continued to grow. Segment operating income increased 14% and margin increased to 14.2% due to volume and yield growth and lower self-insurance costs. Headwinds included higher operational costs due to network expansion and higher purchased transportation rates. Comparisons were easier due to higher self-insurance reserves last year. We aren’t expecting that benefit to continue and comparisons for the rest of the year are expected to be more difficult. Ground’s business continues to grow nicely driven in large part by e-commerce. We believe continued strategic investments will position Ground for long-term profitable growth by increasing capacity and efficiency to better meet the dynamic needs of our customers. Investments include continued network expansion, integration of commercial and residential networks, including SmartPost, completing transition of our pickup and delivery service providers through a single operating model to add service capacity and operational flexibility, incentives for our small business partners to equip their vehicles with improved safety technology. Freight’s operating income increased 2% primarily due to higher volumes and a favorable comparison as a result of a charge for a facility closure. These benefits were mostly offset by lower LTL…

Thank you very much, Mike and Alan. I hope that gave the listeners an in-depth understanding of where we are. As you know, we are again soliciting questions over the Internet several calls ago and we have a number of them. Quite frankly, some we’re not going to deal with because they were answered in the in-depth remarks of Mike and Alan. We’ll deal with them on the basis of their strategic interest to the broader listeners on this call. What we’ll do is we’ll take two from the Internet and then Mickey will queue up two from the live calls. So the first question is from David Ross, Stifel. What is the benefit of having the road freight LTL/groupage business in addition to the packaged business? I presume this talks about TNT in Europe. Might it ultimately just be a small packaged network in Europe? So let me give you sort of a broad answer and then ask Mike and Dave Bronczek to jump in with any details they’d like to add. First of all, I’m not sure this is known as well as it should be that FedEx Express carries both pallets for express freight and packages and packets. And we are the market leader in the United States with our express freight. There are three services; overnight, two day and then two to three day and that is a very profitable service, and we have different pickup and delivery vehicles optimized for express freight. And obviously we have our packaged delivery vans in the express network, mostly the sprinter sized vans. And those two streams of traffic come together at our airport and hub locations where the pallets are sorted in one area and the packages and other and then they’re joined together for the line haul.…

I’m not sure I can add to that answer.

You prepped me well.

I’m afraid to answer it any more but this is Dave Bronczek, I’d just add that Fred outlined it very well. Most of you have been to Memphis. In our Memphis hub, there's a whole freight area that you’ve seen. It’s around the world; the same Dubai, the same Hong Kong, the same Brazil and around the world. One of the big advantages of TNT, and Fred’s right that goes unnoticed, is their ability to handle very profitable freight and that's a part of their business that now we’re going to put into our global network of parcels and pallets and it’s been very successful for us. And it’s a nice part of the business that we added with TNT. It’s also part of what we actually viewed when we went to Australia just a month ago. Fred Smith and I went to visit our colleagues in Australia TNT and our FedEx Express folks in Australia. The combination down there could be very, very powerful for us. We’re looking at a way to make that whole marketplace much more successful, much more profitable and it gives us an opportunity now to leverage one with the other that we didn't have in the past. So to Fred’s point, it's a great part of TNT's new business which is now part of the FedEx business.

The second question comes from Scott Schneeberger of Oppenheimer. Could you please compare and contrast major components, FedEx’s e-commerce opportunities in the U.S. and Europe now that TNT is a part of your portfolio? And what are some strategic initiatives you expect to implement to capitalize on growing European e-commerce? Mike Glenn won't you take that and then Dave can jump in.

Thanks, Fred. Well, first of all, let me say that we believe there's significant opportunity for FedEx both in the U.S. from an e-commerce market perspective as well as in Europe and around the world. Our objective is to build out a robust portfolio of services in Europe and other countries just as we have in the U.S. to include a choice for e-commerce customers in terms of getting their packages delivered in a reliable and efficient manner. That's going to be a significant focus for us as we integrate TNT and we believe the additional density within the European network that TNT will bring to FedEx will allow us to compete on a much more aggressive basis as a result.

Yes, this is Dave again. The jewel in the crown always at TNT was the very best ground road network in all of Europe. It’s great service. They have great people, great cost structure. So with that now in our portfolio around the world, customers have always asked us for a solution for e-commerce to move across the world and mainly into Europe. Now we'll have that opportunity to do that very successfully. Thank you.

Okay. Now we’re going to take two questions.

Thank you. FedEx would like to invite questions via email. To email your questions, please use the ir@fedex.com email address and provide your full name and contact information. [Operator Instructions]. We do have our first question from Chris Wetherbee with Citi.

Thanks and good afternoon. I wanted to follow up on some of the longer-term opportunities with TNT as part of the business. When you think about the $750 million in annual synergy target exiting fiscal 2020, can you help us with some of the buckets Alan? I know you kind of gave us four primary buckets of synergies. Is there any way we can kind of group those there, any one of those buckets seem to be more representative of growth than others? Just want to get a sense of how to think about that? Thank you.

I think what we have done today, Chris, as far as we’re going to go in this quarter, we are – on the synergy side, we are in the process of validating the strategic business case that we used when we made the acquisition, and we’ve got some work to go along there. I haven’t seen any surprises or disappointments at this point. I'm very upbeat about where we are in this process with the team that we put together and with the energy that I'm seeing over there. We might be able to give you some more by the time we get to Q3 or Q4 that you're looking for in a little bit more detail, but at present we’ve got that target out there and we’ll be updating you on how we’re progressing towards that as we move forward. But you have to give me a couple more quarters. I think on the expense side of what we're looking at and particularly in '18, and some of the timing of some of these integration moves that we’re making and some of the restructurings that we’ll be making, we don’t have those firm enough for me to tell you much about fiscal '18 just because of timing issues. But again, later on in the year, not in second quarter but maybe the third quarter call, we’ll be able to I think expand on what we told you today, which I thought was a lot of information that we gave you.

Our next question is from Allison Landry with Credit Suisse.

Thanks. Good afternoon. In terms of the TNT, the outlook restructuring costs, it looks like you’re expecting it to be about 75 million in fiscal '17. I was wondering if you could quantify the benefits that you saw during the first quarter and when you think the profit improvement will more than offset the restructuring costs?

Well, as I said, you can see in the chart and in the appendix that we put out there, TNT’s earnings in the first quarter were fairly small, but we expect to see that improve as we go through the year, and it will be accretive on an as adjusted basis. But we’re not going to start giving different segment outlooks at this point for sure. But like I said, I’m very happy with what I’ve seen. I’m particularly enthused about the people that I’ve met across the organization and just how energized they are, how excited they are to be part of the team that can bring the investment needs and the brand to what they do every day, and we’re as confident as ever about the long-term return.

Okay. Back to the Internet questions that were submitted in advance; Bascome Majors of Susquehanna, how has FedEx been impacted by the significant growth in oversized, overweight residential e-commerce shipments that blur the lines between partial and LTL? Do you see a significant opportunity to grow residential deliveries in your LTL business? So how do you avoid margin pressure from this B2B to B2C mix shift freight? So Mike Glenn, Henry Maier, and Mike Ducker, take it away.

As I commented in my industry remarks, we have seen a significant increase in the demand for oversized and heavier residential packages. I referenced flat screen TVs, mattresses, and trampolines, and we expect that trend to continue. Having said that, we believe the bulk of that volume will be in the ground network. We’ve made several pricing adjustments to make sure that we’re compensated accordingly for handling that traffic, and we’ll continue to reevaluate those. I also referenced that we have put up dedicated sort facilities. Henry can comment on that more. But we would expect the bulk of that traffic to stay in the ground network for a variety of reasons. If it’s possible that we could see some bleed into the LTL network that would have happened, obviously we would make any necessary pricing adjustments to prevent margin decline.

This is Henry Maier. The increase in large packages is clearly being driven by e-commerce. It also goes without saying that these packages create some operational challenges for us. For instance, they don’t always fit on our standard sortation equipment and they take up more space in line haul and delivery vehicles in addition to being more difficult to handle. We recognize customers have few options here, so we’ve realized that they look to FedEx for solutions. And in that end, as Mike mentioned, as part of our network expansion strategy we are now operating temporary non-conveyable annexes. This should repeat. We will run six of them which are essentially separate buildings designed to handle just these type packages which don’t fit on our standard sortation equipment. We’ve strategically located these facilities in parts of the country where our experience and history has shown that shippers reside and ship these type packages and continue to investigate how we handle these in the future. We’re encouraged because there is some pretty interesting new technologies with respect to material handling equipment coming out that will be targeted directly at this type of packaged characteristics. As time goes on I think we’ll employ more of that in our operations.

Mike Ducker, I would only add that it is really less than 3% of our overall shipment count that is residential, so it’s not a big opportunity being no big transition as a result of the e-commerce initiative.

Here’s a question from Helane Becker of Cowen. A lot of companies are starting to experiment with UAVs, FedEx experimenting as well. If so, how is that going and what do you think the timing would be of using UAVs both in the air and on the ground? Also, is it realistic to believe there could be unmanned trucks? Is FedEx going down this route (lol, pun intended)? So Helane, obviously we at FedEx are very mindful of these trends. We have a number of activities underway in robotics in particular in the packaged handling sector. Henry and FedEx Ground are real leaders in this regard. In terms of UAVs in particular, we have five separate, I think it would be not fair to call all of them projects but work streams or projects in both aviation and automated vehicles. The difference with us and a lot of other people we’ll just prefer to keep working those issues and tell you about them when they make a meaningful difference in the company. I will say this much. I think our philosophy and we know a lot about these technologies. After all, our auto pilots in our 777 airplanes are among the most sophisticated robots in the world. They can take off, land the plane and taxi to the gate and turn themselves off if that’s what we chose to do so. But it’s very difficult in the foreseeable future to substitute for the well trained pilot or driver or person. And we look at the use of automation more as an opportunity to improve the productivity of those types of experts within our system to make their job more comfortable and easy and above all to increase safety. So those five work streams are underway. You’ll hear a lot about them I’m confident in the next few years. But important in our philosophy maybe slightly different than a lot of other people that think that right over the horizon, everything is going to be an automated vehicle or some sort of UAV. We think that is unlikely and that this technology like most technologies particularly aviation technology will evolve incrementally over time with a great emphasis on safety first. So that’s our UAV update. We’ll take two questions now.

First up, we have Tom Wadewitz with UBS.

Great. Thanks for all the color on the call and Alan in particular all the financial information around TNT is very helpful. I wanted to see if you could give us the sense of just to understand is there a base operating income level that we should be considering for TNT, and you’re adding 750 million on top of that or is 750 really kind of the bucket that you end up with at the end of fiscal 2020 in terms of operating income contribution? And then also I guess are you – the goodwill amortization, is that going to come in at some point or we should just consider that number I think you said like 115 a year, that’s just kind of excluded from the way you look at TNT going forward? Anyway thanks for the information. Just looking for a little more to understand it better. Thank you.

There will be some base TNT in that number of 750 but you’ll be able to see when we report what they earn at the end of this year, how much of that is actually increase going to be in synergy. So when we get there, we can give you some more detail about that. As to our purchase price accounting, you’ll see in our 10-Q that there was about – the purchase price is $4.9 billion. There was about 3 billion of goodwill in that which we will not be amortizing and hopefully we will never amortize it as we will seek to make sure that we will earn plenty of money to justify the carrying cost of that goodwill. The intangible assets, the biggest one’s the customer relationship that we’re looking at right now. We’ve got that on the books for 685 million in a 15-year use for life. We’re going to work that very hard. We also have technology and trademarks. You’ll see that in the 10-Q as well. I reserve the right to change these amortization lives and amounts as we get further through this process. And as we do that, we’ll keep you fully informed.

Our next question comes from Rob Salmon with Deutsche Bank. Rob, if you could check your mute function please.

Hi. Sorry about that. Thanks for taking the question. With regard to the U.S. domestic package market, we’ve seen both you guys and your primary competitor Brown [ph] announce some decent announce some decent increases to the dimensional based pricing. And obviously, in 2017 you’re taking kind of another step here. I’m curious from a strategic standpoint, what risks do you see with the USPS kind of highlighting the fact that they haven’t made any changes there and how you attack that from a competitive standpoint, whether it’s through the Postal Regulatory Commission or just service? I’d be curious to get your thoughts there.

Well, I’m not going to comment on any competitors’ pricing actions but I’ll say that our decision was driven by a couple of issues. One is, we wanted to rationalize our dimensional weight policy for both domestic and international, which we have now done so both domestic express and international shipments will both carry a dim devisor of 139. In addition to that, obviously one of the key issues for us in managing the network is the density per package. And one of the challenges that we do see with the increase in e-commerce transactions is packaging that is not as efficient as it could be and there are a number of benefits to becoming more efficient and you can use smaller packages which is one, obviously it’s more sustainable from that perspective. And we encourage customers to take advantage of our state of the art packaging lab to make sure that they maximize the packaging that they have to avoid these charges. So that’s primarily the driver behind our decision and that was made in the defendant of any – what any competitor might consider. I can’t comment on that.

Okay. A couple more questions from the Internet. David Ross; why is the company buying back stock rather than paying down debt and deleveraging? I think I’ll just have Alan answer this.

Thanks for the question over the Internet, David. As you know, we have very strong cash flows inside FedEx Corporation. I think you heard me today talk about how we are excited about the future and continuing to grow those. And the fact of the matter is we believe our stock’s undervalued. But we’re also investing in the company’s future at the same time. I think we get criticized a lot about our capital expenditures but they all carry very solid long-term return on invested capital or we wouldn’t be doing them. And then lastly, although we got a lot of debt, I should tell you that the average coupon on that’s 3.6%. So every project that we’re doing is going to be earning way more than that on an annual basis. So our credit metrics are good. We’ve committed to improving our credit metrics but we’ll continue to buy back stock, raise dividends and invest in our businesses going forward because we can and we’re going to manage it accordingly.

Okay. There are a couple of questions in here from Tom Wadewitz of UBS and Allison Landry essentially about improving density levels and the issue of SmartPost deliveries by FedEx Ground, FedEx SmartPost. So let me just make one comment here and then ask Henry to talk about it. I have said this over and over again for the last couple of years. There is a continuing misunderstanding of the issue of route density, revenue per stop and the profundity of those metrics on the e-commerce business. And there is no entity that can provide the type of route density and cost for lightweight residential delivery as the postal services both in this country and abroad. Postal service in this country, correct me if I’m wrong here, Henry, makes 156 million stops per day. So they are a mail company that puts parcels in with the mail stream usually in very small vehicles 200,000,150 cubic foot jeeps. They are out with an RFP for somewhat larger vehicles and so forth. So the real question about e-commerce is what’s the future of mail and what implications does that have on the price of the delivery of packages. Put a different way, it is mail that subsidizes the delivery of packages not packages subsidizing delivery of mail. And the Postmaster General talks about this in her calls and so forth and it has been a very, very good thing for the postal service that the big carriers like FedEx and UPS that had these enormous upstream systems can feed these lightweight residential packages into the postal business. They don’t have to have that investment, the hubs, the sortations and so forth. And similarly Amazon of course now has a very substantial direct injection on their own. But there is no comparable entity to the postal service in terms of density and even the most rapid projections of e-commerce growth will not be a fraction of the density that the postal service has today. So there are these continuing articles about this and more and more things are going to affect the density. My Goodness, they would have to be quantumly greater than is the case. And so that’s the real question about e-commerce is, what are price of those deliveries on a go-forward basis which are driven either by density in the case of the postal service or input costs. And so Henry jump in here. This is the issue and is very poorly understood and it – I called everything I can think of, mythology or whatever you might want to say but most of the commentary on this is not accurate.

I would just add to that, Fred. Thanks. Even with 156 million unique addresses that present an opportunity for a delivery every day, that base is growing by 900,000 addresses a year. So this is a moving target. And I would tell you even with the tremendous growth all of us who participate in e-commerce are seeing are really only delivered to a small percentage of those addresses every single day. We just happen to have very complex, state of the art software tools that allow us to take a slug of packages I guess for lack of a better word with what we’re presented with every day by our customers and optimize those packages for the most efficient delivery. Now what’s been going on at FedEx Ground is really an understanding of this phenomenon and what e-commerce is doing with respect to changing our business, our Holy Grail here is just to improve delivery density and revenue per stop and the only way you can do that in our network is with the network integration we’ve been going through for the last several years, which includes the integration of ground and home delivery and now, since last September we announced we’re integrating SmartPost in that as well. Over the top of this is the technology needed to manage the most optimal route of distribution of those packages every single day. Having a single contractor network which we announced in January we’re moving to a single contract and we expect to be essentially 90% done with all of this by 2020. You layover our ability beginning earlier this year to be able to statically match packages that are destined to the same residential delivery address every single day. And next summer the ability to do that virtually plus some additional engineering around deliveries on certain streets and neighborhoods when there’s another residential package involved. And what we end up with here is a much more efficient, much more flexible network that much lower costs, much better capital asset utilization going forward with the growth of e-commerce than the one we have today.

Okay. We’ll take two questions from the call.

Our next question comes from Jack Atkins with Stephens.

Good evening. Thank you for the time. Just going back, Alan, to your comments on the synergies for a moment, are the synergies – just to be clear, are the synergies in addition to the expectations for margin improvement from the outlook program that TNT was already undertaking? And then also could you quantify the EPS accretion from TNT that is embedded in the adjusted FY '17 guidance? Thank you.

I’m not going to go there on number two. That would be again trying to break us down by segments in EPS delivery. As to number one, we bought TNT for a reason. We didn’t own them last fiscal year except for a couple of days. So when we get out to 2020 what I’m saying is we’ll be 750 million of synergies better off than we would have been without them. So you’ll be able to very easily measure that and follow that along. And as I said, we’ll talk about this more after we’ve completed our validation of our strategic business case and met with our Board of Directors about where we stand on that, which is going to take us a little bit of time to get to, as we are also right in the middle of the throes of actually integrating as I mentioned to you in my opening remarks. So just have a little patience but the whole point was to tell you, this thing is a homerun, it’s going to be a homerun and we’re going to have that done by four years from now and we will continue to update you along the way. It’s going to be a great ride.

Our next question comes from Brandon Oglenski from Barclay’s.

Good evening, everyone, and thanks for letting me get on here for a question. And I’ll just second that we definitely appreciate the TNT disclosure. I think your investors will too. And we’ll also be shipping plenty of trampolines this fourth quarter. Henry, on your Ground margins, it looks like you actually got a little bit of improvement year-on-year. I know there’s some issues with casualties last year. But nonetheless, as we look forward, I think a lot of folks had been worried that the network integration costs of expanding at such a rapid pace, growing the top line so rapidly, would weigh heavier on the margin. So can you talk to the market dynamics? Has volume gotten better? Is demand better than forecast, pricing better, or should we be thinking maybe those headwinds still loom in the near term?

Let me let Mike comment on the market here.

Well, let me say that customers still have had demand for our Ground service for the simple fact that it’s extremely reliable and we are faster than any other Ground network out there by a significant percentage. So our sales team continues to have great success selling our ground service. Let me say that from a volume growth and yield management perspective, we’re always looking for the right balance there to maximize the profitability. So we work very closely with Henry and his team to make sure that we’re making pricing decisions that they’re going to contribute to long-term profitability and that’s going on a weekly basis. So we got good collaboration there but we continue to see strong demand for Ground because of the value proposition that it provides.

This is Alan. I’m going to give you a little bit color on where Henry is right at the moment. We have invested and our investing significantly this fiscal year in Ground to get to the next level where we need to get. And it’s a big capital step I would tell you. So it’s $2 billion of this year, maybe the same even next year. And that of course has a cumulative effect. When you turn on these new facilities they’re not full day one. You got to work them through the systems and they have a little bit of a drag. That drag is fine to me because I know what the long-term results are going to be. I know the growth that everyone is going to have. Originally, we did get a little surprised by how quickly these non-conveyables and oversized things grew. We’re going to lean right into that. We’re going to be the best in the business in getting those delivered. We’re going to get them priced right. They got to be handled a little bit differently. So that also has a start-up cost associated with it. So I gave you guidance for the full company for the year and Henry’s comparisons are going to be a little bit more difficult because of all those investments that we’re making. But the state of the business is as good as it’s always been and I can’t wait until we turn the corner from this period of heavy capital investment.

Well, here’s one for you Henry and Mike, whichever one wants to take it. Can you discuss and quantify the synergies thus far with GENCO in your portfolio as well as some strategic initiatives for this business over the coming year or two?

Well, we bought GENCO because of their expertise in fulfillment, traditional 3PL services and returns. That expertise allows us to compete for business that we wouldn’t have been allowed to compete for before. And on top of that we get to secure the transportation business. I would say strategically right now we continue to look and explore products that enhance e-commerce fulfillment and add to the returns portfolio they currently have. And I would also add here that we expect the integration of GENCO to be essentially complete by the end of FY '17.

Okay. Here’s one from – Matthew Troy sent one from Wells Fargo Securities about the dimensional pricing and calculation. I think Mike has answered that as to what drove it and why we did it, to standardize it across the enterprise and basically the realities of the increased costs in handling it. William Flynn [ph] just sent one in. When you think about the acquisitions you made over the past 30 years, which ones do you view as transformational? Well, I guess if you stack rank them, the three that would be in top tier categories would be Flying Tigers, which put us into an unprecedented position in the growing Asian market. Certainly Caliber/RPS which is now FedEx Ground and TNT would be right up there and it’s going to be as Alan said a very, very significant earnings engine for us. And what’s a little bit different about Tigers and Caliber and RPS, those gave us presences in adjacent markets. Tigers in the intercontinental business, we were much smaller as FedEx and so we had to go out there and develop the business. Alan will remember this with keen detail like I do. We bought it at the optimally worst time. The Gulf War started and air cargo basically stopped, which was an interesting set of circumstances. But it put us in an unprecedented position. That’s why we’re the market leader in air cargo and air express. Caliber/RPS of course put in the ground segment, which we had not been in before and a lot of work – a lot of people, like Glenn in particular heading up some of these transitions we made. Of course, it’s a fabulous business now. And TNT, as Alan has told you there, we’re going to get the synergies just from putting the companies together and then we’re going to build additional profitability on top of that. So it’s going to be a great thing and I think Dave Bronczek and Alan have all said this, but let me just add to it, just wonderful people. We have just been so thrilled with the folks that we’ve gotten. Many, many of the TNT people are now in high executive positions in FedEx and I think it’s going to be a great thing. Next, we’ll take two more questions.

Next up we have Ken Hoexter with Bank of America Merrill Lynch.

Great. Good afternoon. Thanks for taking the question. I guess you talked a lot about the integration of TNT, but maybe talk about are the expenses at this stage larger than what you thought they would be given the couple of months under your belt? I just want to understand kind of what – as you talk about the expenses? And then also you had talked before about the tax potential. Is that something that will roll in over time, Alan, or is that something we could see in kind of the stair step function? Thanks.

I’ve been really pleased with how well our spending has followed what we had designed in integration plan. We knew that IT was going to be a big one and that’s the long pole in the tent, but we’ve got really good people working on this. And you’ve heard we’re already starting to integrate, that’s a little bit ahead of what I thought we would be able to do. So when I say 700, 800, that’s kind of what we thought about all along. And as I said there will be some restructuring charges along the way. We bought Flying Tigers and we bought Ground, there wasn’t ‘the integrations’ so much to say as there is in this one. So this is going to be a little bit different for us but we’re well ahead of the game, so I’m very comfortable with how that’s going and stay tuned and bear with us and we’ll keep you updated and apprised. But it’s going to be a homerun.

This is Dave. Just to follow up on that. I’ve been in Europe a lot of times now and meeting with the whole team over there now, the TNT people that have joined FedEx and I got to say and Fred said it now, the people are fantastic. Service is second to none on the ground. They’re the best in Europe coupled with the best air express system in Europe. We have this opportunity to make this not only what Alan said a homerun, this is a grand slam. It has gone exceptionally well because their people and our people have matched culturally and at the end of the day that’s the main thing.

Back to the second one, Ken, on tax, you tell me. Are we going to get tax reform or not? The United States is shooting itself in the foot by continuing to not do territorial and have the highest tax rate in the world. What I’m saying is based on today’s laws, we’re going to earn a whole lot more in lower tax places than we do today and over time that’s going to drive our rate now. We also are in the process of restructuring our tax structure and I think we’re going to be much more efficient in terms of paying taxes where we actually earn the money than we’ve been able to do as a U.S. certificated air carrier over the years. So both of those should work in our favor and neither one of those benefits are in the 750. 750 is above the line.

Our next question comes from Ravi Shanker with Morgan Stanley.

Thanks. Good afternoon, everyone. So not to beat a horse here, but when you consider the outlook costs and the integration costs, can you tell us how much of that is going to be expense versus cash? And also can you give us an update on the Hanjin situation and if you’re seeing any benefits or any expedited freight as a result of that? Thanks.

The only thing that’s not cash, Ravi, are the amortization of the intangible assets. Everything else is cash and I’ve given you all those numbers in my presentation and they’ll be restated in the 10-Q. And I’ve only given 17 at this point. The total 700 million to 800 million is integration costs by itself and does not include any intangible assets, so that might help you a bit. I’ll let somebody else handle Hanjin.

Yes, this is Dave. There’s no affect for us at the moment whatsoever on your last question, Ravi, on Hanjin.

So we’ll just take questions now from the live call.

Our next question comes from David Vernon with Bernstein.

Hi. Good afternoon, guys, and thanks for taking the question. Mike, could you maybe help us dimension how much the dim weight change would affect, what percentage of the business would be affected by that and what kind of earnings impact you think that might have in the near term? Just trying to get a sense for what portion of volume that dim weight charge could apply to.

Well, I appreciate the question but with all pricing decisions we don’t forecast the economic impact and the profit impact of that or the percentage of volume that it’s going to impact. Obviously, as I noted before, we would love to see customers access our world-class packaging lab to continue to provide more efficient packing and we hope they do so. And so it’s hard to determine what percentage of packages it will affect because we hope behavior changes. But we don’t forecast the bottom line impact to these changes.

This is Alan. We actually do internally but we don’t externally. And so let me just say, it’s a good thing.

Our next question comes from Scott Schneeberger with Oppenheimer.

Thanks very much. Could you discuss what you’ve seen with regard to pricing and the capacity environment in the international markets, at least with regard to demand to international priority and international economy, as that trends look pretty good right now for you? Thanks.

Well, as you’ve seen in our numbers it’s actually very good for us right now. The international priority box is up 3%, the international economy is up as well. So in many of the segments that we are really leading the world, the volume is there and it’s growing. On top of that, the yields are increasing. So I would say and Mike might want to add to this, on the international front we’re right in the mainstream of where the main business is growing. It’s very good for us.

And I would just add that we’ve got a rational pricing environment, so we feel pretty good about where we’re situated.

Can we take one more question?

Our final question comes from Helane Becker with Cowen & Company.

Thanks very much, operator. Hi, everybody. Thanks for the time. And Fred, thank you for your earlier in-depth answer. Just one question, Alan, and I’m sorry it’s kind of short-term in nature. But in terms of the guidance that you gave us, the $0.10 raise, was it due to TNT or due to the increase because of improvement in the base business? Thanks.

Well, it’s from my All-Star Dave Bronczek and his team. They’re knocking it out of the park and you see what they’re margin in the first quarter is. He’s been having a heck of a year and so that was the reason for it.

That does conclude our question and answer session. I’ll turn the call back over to our speakers for closing comments.

Thank you for your participation in the FedEx Corporation first quarter earnings release conference call. Feel free to call anyone on the Investor Relations team if you have any additional questions on FedEx. Thank you very much. Bye.

Once again, that does conclude today’s call. We appreciate your participation.