Good day, everyone, and welcome to the FedEx Corporation Third Quarter Fiscal Year 2019 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, and welcome to FedEx Corporation's third quarter earnings conference call. The third quarter Form 10-Q, earnings release and stat book are on our website at fedex.com. This call is being streamed from our website where the replay will be available for about one year. Joining us on the call today are members of the media. During our question-and-answer session, callers will be limited to one question in order to allow us to accommodate all those who would like to participate, since we have about one hour to complete the call, the spread will be on CNBC following the call. The answers to the questions we received from analysts prior to today have been incorporated into our opening comments. 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 website at fedex.com for a reconciliation of the non-GAAP financial measures discussed on this call to the most directly comparable GAAP measures. Joining us on the call today are Fred Smith, Chairman; Raj Subramaniam, President and COO; Alan Graf, Executive Vice President and CFO; Mark Allen, Executive Vice President, General Counsel and Secretary; Bob Carter, Executive Vice President FedEx Information Services and CIO, Brie Carere; Executive Vice President, Chief Marketing and Communications Officer. Now, Fred Smith will share his views on the quarter.

Thanks, Mickey. And welcome to all joining our quarterly call. Let me offer sincere thanks to hundreds of thousands of FedEx team members for delivering an outstanding peak season despite weeks of tough winter weather in many areas. Quarter three was a challenging quarter. Our FY19 plan envisioned topline revenue growth of approximately $6 billion. Mostly due to lower economic growth in international regions, we expect to end the year with about $4.5 billion in increased revenues. Of course the profit flow through of the $1.5 billion revenue shortfall would of course been substantial in FY19. Nonetheless, the midpoint of the adjusted EPS guidance is up about $0.20 over FY18. Five-year EPS CAGR using midpoint of adjusted FY19 EPS guidance, I might remind everyone, is expected to be 17% and our target for long-term EPS growth rate is 10% to 15%. We have projected FY19 earnings growth, despite a major expansion of FedEx Ground including one, the opening of two major new hubs in Pennsylvania and Connecticut this past fall; two, expanding facilities for the rapidly growing oversized package e-commerce segment; and three, transitioning to a year-round six-day FedEx Ground operation. FY19 free cash flow adjusted to exclude voluntary pension contributions, cash expenses related to our voluntary employee buyout program is expected to be approximately $1.5 billion. In addition, we expect free cash flow in the years to come to expand significantly, assuming that we have reasonable macroeconomic situation. While that macroeconomic environment lately has presented challenges relative to our prior expectations, particularly at FedEx Express, we’re quite optimistic we’ll improve results in FY20 that begins 1 June. We’re very enthused about the FedEx SameDay Bot, developed with DEKA Research and Development that we unveiled on February 26th. While we will have much more to say about this technology, we believe the economics of the FedEx Bot are compelling that regulatory approvals are highly likely over time, we will enter a substantial new market segment that is a logical extension of FedEx capabilities. Let me now turn to Raj, followed by Brie and Alan for further remarks, and then we'll take your questions. Raj?

Thank you, Fred, and good afternoon. I'm very excited to be here with you on the call today in my new role. I’m also really excited about the two appointments we announced last week Don Colleran, as our President and Chief Executive Officer of FedEx Express, and Jill Brannon, who's succeeding Don as EVP and Chief Sales Officer. I worked with both Don and Jill for many years, and I'm thrilled to have their leadership in these critical positions. I'd first like to take a moment to recognize the efforts of our team members to adapt to operational challenges this quarter. As you all know, we saw a number of severe weather events this winter in the U.S. During Q3, there were more than 17 instances of major highway closures or restrictions due to named storms. And in February alone, 50% of the FedEx Freight shipments were impacted by weather a five-year record. Thank you to our team members for their hard work and dedication in delivering the Purple Promise to our customers in these trying conditions. As I mentioned on the last call, one of my immediate priorities was TNT integration. I'm pleased to share that we have made significant progress. The operational integration is complete in the U.S., Canada and the Middle East. We have 35% of our international stations integrated and our sales force will be substantially integrated by May 31, 2019. As we integrate stations, duplicate pickup and delivery schedules are eliminated and routes are optimized thus reducing costs. At the hub level, our road and air hubs are outfitted with technology that enables injection of volume into the lowest cost air or road network. Now, I want to emphasize that we are not waiting for integration to complete to add value for our customers. On…

Thanks, Raj. I believe it's well-known that the systems at TNT suffered from an underinvestment prior to the acquisition. Since then, however, we've made significant progress to modernize and eliminate legacy TNT applications. More than 600 TNT applications have been retired to-date and many hundreds more will be retired over the coming year. TNT’s applications were historically very localized and bespoke. As we adopt the core FedEx applications, we're standardizing both business processes and applications at the same time. This results in improved security, reliability and speed to market, all of which improve customer experience. Due to this ongoing simplification, TNT system’s reliability is at an all-time high.

Thank you, Rob. To actually look beyond fiscal 2020, the integration has also uncovered numerous transformation and optimization opportunities that we will pursue. These include upgrades to financial systems, HR platforms and simplification and standardization of transactional work in our back office functions. While these activities will require additional investments, potential financial benefits are expected to be significant. I want to reiterate that the value that TNT brings to us around the world is very clear. In Europe, we have an unmatched footprint and capabilities to deliver parcels and freight that encompasses more than 500 stations and 55,000 weekly road trips across 45 countries. In addition to the TNT integration, there continues to be significant media and investor interest on the potential for Amazon to disrupt the transportation industry. We have been clear that this is not a threat to our business because Amazon represents less than 1.3% of our total revenue, which is substantially lower than what our largest competitor carries, nor is Amazon a threat to our future growth. I want to take this opportunity to provide some additional facts about the market we play in. The size of the U.S. domestic parcel market is roughly 15 million packages per day. In addition, the global market for international parcel shipments is another 10 million packages per day. And we carry around 14.5 million packages per day today. Even if the e-commerce market did not grow one additional package, there's still substantial growth in the industrial sector of the market where we are extremely well-positioned to gain share due to our unmatched network and global portfolio. So, now, let's talk about e-commerce. This represents a significant additional opportunity for growth. We believe that we are able to add to our existing expertise and provide a market leading value proposition…

Thank you, Raj. Good afternoon, everyone. Given that this is my first call, I wanted to take a moment to talk about our strategic growth priorities and why specifically I'm so excited about those growth priorities. At FedEx, we are laser-focused on three key areas that will drive this growth, small and medium business, international, and e-commerce. And let me briefly touch upon each of those now. FedEx understands how important small businesses are to the growth of the economy and to FedEx. We have gained significant market share and revenue in this segment. We successfully delivered this growth through our efforts to optimize sales, marketing and digital capabilities and optimize our cost of acquisition. This segment is especially -- really values the market leading trends at the FedEx Ground. We also have strong programs in place that continue to gain momentum and loyalty with our small businesses, including our best-in-class loyalty program and our Small Business Grant Contest. It’s programs like these that truly help us set us apart. On the international front, we are taking decisive action to improve our results. And Raj already covered our focus on TNT in Europe. We have the most comprehensive intercontinental cargo air networks in the world. And we continue to lean into the strength, while supplementing it with new and innovative value proposition. For example, we have FedEx Delivery Manager now in 59 countries outside of the U.S.. And we are making strong progress on differentiating e-commerce portfolio through our FedEx Cross Border offerings. Raj mentioned, e-commerce continues to be a significant driver of the growth in the U.S. domestic market. Currently, it's about 50 million ADV or average daily volume packages today and it will grow to 100 million by 2026. We have a very robust e-commerce portfolio with strong…

Thank you, Brie, welcome to the team. Good afternoon, everyone. Slowing international macroeconomic conditions and weaker global trade growth trends continue. Asia volume weakness, which we experienced during peak season, deepened post Chinese New Year. Reflecting these macro challenges, FedEx Express international revenues declined year-over-year in the third quarter. U.S. volume growth continued to benefit from the expansion of our e-commerce solutions but yields were pressured by this expansion, lower weight per shipment and service mix changes. With that, total FedEx Express revenue declined 1% year-over-year in Q3 versus growth of 8% year-over-year in the first half of this fiscal year. Our strategic management committee has been investing a significant amount of time identifying operational and financial steps to address the challenges we are facing. To mitigate the lower than expected revenue trends, we have further reduced our variable incentive compensation, launched our voluntary employee buyout program, and limited hiring and discretionary spending. FedEx Ground and FedEx Freight both had strong volume and revenue growth in the third quarter. FedEx Freight continued to focus on balanced volume and yield growth and produced another strong quarter of operating results. FedEx Ground operating results were negatively impacted by the inflationary impact, the tight labor market on our purchase transportation rates and employee wages. Higher costs related to staffing and network expansion, and the January launch of year-round six-day per week operations also impacted Ground’s performance. While the launch of six-day operation was a headwind for the quarter, the use of existing assets more efficiently is a positive for the FedEx Ground business as it ultimately drives improved performance and enhances our competitive position. While these benefits are not always reflected immediately and may take time to be realized, we believe it is a winning strategy for the long-term. Looking forward, we are…

[Operator Instructions] And our first question comes from Amit Mehrotra with Deutsche Bank.

Thanks, operator. Hi, everybody. Fred, when you started your remarks, you talked about 17% compounded annual growth in the adjusted earnings base of the Company. I also think it's -- I guess, it's important to note that free cash flow per share has gone from significant positive territory to negative territory over those years as well. So, while I fully understand and we all fully understand the importance of having long-term investment horizon, the margins of the Company are basically stagnant at best and in many periods down on a year-over-year basis. So, if you can just give us some of your thoughts on how you think about the moving pieces between balancing capital investments and returns given the performance in recent years? I appreciate it. Thank you.

Well, I don't know much what I could add to the comments that you just heard from Alan and Raj. Basically, the perspective of Wall Street is always give me the money; perspective from inside FedEx is what's the best thing we can do for the long term. Now, there have been some exogenous factors that have happened. First, let me remind you that in June, June 27th of 2016, FedEx was in the middle of the largest state sponsored cyber attack in history, so-called NotPetya account that brought the British health care system almost to a halt, cost hundreds of millions of dollars for Maersk, the big sea container line. I think, I'm right, it cost $1 billion dollars to Merck, great medical company. So, had TNT been a standalone company at that time, it would have been bankrupt. We did [indiscernible] Rob Carter and his people in recovering from that. So, I would say that the slowdown in the TNT situation on the Express side because of NotPetya was substantial as we reported at the time. Second issue, but as Raj told you, we are very optimistic about our intercontinental network and the ability to improve margins in the Express business, because of the integration. On the Ground side, the issue is very straightforward and that is the market changed from more business-to-business to business-to-consumer. So, we could basically have decided not to address that. But as Brie mentioned and Raj both, we decided that we wanted to play in that space and that we were not only playing in it, we were going to be the market leader, and we’ve gained market share in that sector for 18 consecutive years. So, I think we've got a pretty good track record of that. So, we started this fiscal year, very optimistic about our ability to expand margins and to hit on all cylinders. But as I tried to lay out in my remarks, we anticipated a $6 billion revenue increase. We're going to end up with about $4.5 billion. And this is a leverage business and to the extent that the last few percentage of revenue points go to the bottom line at a very disproportionate rate. So, that hopefully answers your question, I mean, we're not unmindful to the issues that you're talking about, but we do think we've got a good runway in the future because we've made those investments.

Our next question will come from Chris Wetherbee with Citi.

I wouldn't mind picking up right through where you left off. When you think about the trends and sort of the revenue shortfall as the years gone on, how do you think about sort of adjusting to that? A lot of what we're talking about are some very interesting and started with probably important long term investments, but when you think about capacity in the short run, it sounds like you're not expecting trends to get worse, but at the same time it feels like maybe things are decelerating internationally. Can you talk a little bit about maybe what you're going to do in that quarter or two you try to stem some of that profit loss from the revenue shortfall that you're seeing?

Well, you know, part of the problem about reporting quarterly earnings is, you're looking in the rearview mirror. The facts of the matter are that we actually are seeing a few green sprouts now as we go into the spring. Part of that may well be the significant weather issues that Raj and Alan both commented upon. And quite frankly, we're under reported I think because of the government shutdown and the trade issues. This was a very, very tough operational winter and in some cases unprecedented, but again somewhat underreported. So, we are seeing some pickup across the Pacific. Our package business in Europe is now growing again. And so, we're feeling a little better about things. And obviously, the range of the fourth quarter and the fiscal year that Alan gave you is related to our caution, I'm not putting too much of that in the bank. Alan may want to talk more about that.

Chris, we don't have a capacity issue actually. I tried to describe we had some mix and yield issues at Express and [indiscernible] Express is the issue. It's not Ground or Freight. Express returns are what we have to work on the hardest I think we've described for you how we're doing that. But we run pretty tight capacity right now, it's just a different mix than we had expected. So if you look at Express’ yields in the quarter, they were down year-over-year. And so, the mix had a big impact and one of that is the fact that we are striving to hit the e-commerce demands at the same time as we're reducing our cost structures and we're getting there. We just aren't getting there as fast as we would like to. In terms of Ground, what's going on at Ground is nothing short of transformational. Ground is going to be in a position to significantly drive down its costs of serving the residential market and significantly increase its capacity with not much incremental capital expenditure particularly in terms of hubs. It will be investing in terms to be able to handle large packages. We love large packages, keep writing those large packages. We're the best in the business in handling those and we're going to streamline those operations even more. So, I'm not at all worried about Ground's particular margin situation here in Q3 and Q4 because I know where we're headed. So at the end the day, we're running pretty tight on capacity. We're expanding our capacity capabilities at Ground and Freight, and we're very carefully monitoring what we have available out there for FedEx Express.

Let me just add one other comment here. I'll say perhaps, modestly, there's no organization in the world that knows more about aviation than FedEx, commercial aviation, not one. There's certainly some that are probably peers with us, but we have the finest aviation professionals that operate commercial airplanes. We have a lot of MD-10 airplanes that are 40 years of age. Now, we overhaul them and redid the cockpits and the one thing and another. 11 of those airplanes will be retired in next fiscal year. All of them, the MD-1010s will be gone in FY '21. So, we're not going to slow down on that. It's imprudent to do so and I think there was one suggestion from somebody that we ought to consider that. But that is not a correct decision and our view based on our understanding of the equipment and capabilities. And as Alan has told you on several occasions, these things have great accretive capabilities. They lower our costs and improve our reliability. So, hopefully, we'll get some good news on some of this international traffic and it will go to the bottom line in the same rapid fashion that the top line diminution took it away. So hopefully that's helpful.

Our next question comes from Scott Group with Wolfe Research.

So Alan, last quarter, you've talked about margin and earnings growth in fiscal '20. Do you still feel comfortable with that comment? And then, you also have hinted last quarter as international headcount reduction or profit plan. How come we don't have one yet? And then, is it sort of too late to get one that will get a full-year impact or much of an impact in the fiscal '20?

You could tell me, are we going to get a trade deal done with China and is Brexit going to come out good. I could give you a lot better answer about FY '20 than I can sit in here for a moment. But we sort of have to plan for both ways and obviously the leverage right now that we have is in our international revenues, on a very large fixed cost basis. So in terms of a plan, we have a plan. No question, we have a plan, we're executing. I think you heard Raj and Rob talk about, what's happening with TNT integration. But we're now finally getting service improvements at lower costs. We're speeding up and network by a day on 40% of the traffic. Customers are coming back. So, it's just a matter of time we have another year of integration to go. But we definitely need a little bit better economic environment in Europe to get the full benefits of TNT. We will get the full financial benefits of TNT, I have no doubt it's just a matter of when.

Jack Atkins with Stephens has their next question.

Just wanted to go back to the comments around, softening global macro condition and softening trade trends, I know you're specifically calling out Asia and Europe. But when you look through your U.S. Express results, I think it's fair to say, you saw volume declines and through your form U.S. Express package sub-segments. You also saw yield celebration in your U.S. Express business. So if you could just sort of comment on what you're seeing in the U.S.? I know you're talking about a fairly strong U.S. backdrop, but it seems like we're seeing deceleration there. We'd just be curious what's driving that?

Hi Jack, this is Raj. I think on the U.S. side, our overall volume continues to increase roughly 6%. And I think if you look at what's driving the growth, it is e-commerce. What we are surprised by is the fact that the way for packages and lower than what we anticipate is going to be and that is, that's impacted our yields. So we are doing, first of all, so we're in a position to gain share on e-commerce. We will adjust our cost structure to make sure that we have the right cost to serve. We are very focused on driving overnight volume growth and we are focused on revenue management as well. So there's a lot of activity going on in the U.S. today and I'm quite optimistic that we are going to get this right. And Brie, if we don't add anything to us.

No, fundamentally, Raj is right. The volume is very strong. It is a lighter weight package from e-commerce perspective, which is why we have made the changes in our e-commerce portfolio that FedEx Extra Hours is a great, FedEx Express service that leverages the existing infrastructure. And again, that lower yield is two things, the lower weight and its shorter zones. As we mentioned, we anticipate that the large retailers are going to continue to fulfill locally that's going to put pressure on that top-line yields. But we have the right infrastructure to do so profitably, which is where FedEx Extra Hours and similar products come into play. Those are two issues.

Allison Landry with Credit Suisse has our next question. And we aren't able to hear you, please check your mute function.

This is Samantha Yellen on for Allison Landry. Thanks for taking my question. Can you give us some color on TNT mix? Specifically, have you been able to regain share in the European parcel market following the restoration of TNT service levels in early January?

The short answer that question is, yes. We are seeing actual -- we're higher year-over-year growth every month from the last 3 months we're seeing accelerating year-over-year increased in revenue and volumes in the European possible business. And as we have stabilized and improving our service levels. So it's not a surprise, you despite the economic headwinds in Europe. We now have a terrific value proposition. As I said in the opening remarks, we're releasing new value to our customers. We've improved our service and the customers are responding. So, we are seeing increased revenue, increased volumes in our core partial business

Our next question will come from Brandon Oglenski with Barclays.

Fred I, always come back to your response to I think the first question which is, you know, Wall Street always wants to see the money? Well, I tend to agree that we can be short term focus and you guys have definitely proved over the longer going to be very growth focus. I guess if we look back 2006, I think your margins peaked out near 10% we thought to get in 2016. And it's always associated with a lot of CapEx, a lot of assets and then we go through sort of curious where you have to take involuntary separations or voluntary but incentive comp and things like that. Maybe just given the size of FedEx today have is that a new phase where we don't need to bring on as many assets, spend as much capital, maybe focus more on returns and margins because I think that's what investors would like to see, some more consistency and returns and margins over the long-term.

Well, so would we. I don’t know what to say? They the programs we have again are not driven because we are profitable in terms of spending capital. It's the nature of the business. We buy an airplane fleet of 700 planes. We've built the business quite frankly. We've used the airplanes and our largest competitor, when they came into the Air Express business was eight times bigger than we were. We're now roughly at parity with them. So we are in the midst of spending a significant amount of capital to replace our very old airplanes and to expand the Memphis in the Indianapolis hubs. But again, I think as the year turned out the way we had hoped it would at the start of the year and remember it was still in October or November when the Fed was being chastised by the President and others because they were going to raise rates all through calendar year 2019. So you see the Cairns perspective right now so there's no just an act between what Wall Street wants and what FedEx want, it's the matter of whether we would be prudent and stopping doing what we were doing if we think that they will improve our margins and I think I even answer previously to the questions you'd have a big setback with not patch you I think we would be even better results in terms of margins of Express at the moment. And secondarily, the Ground market is moved much move to residential delivery and we've moved with it. That's why we went to six day a week operations beginning January the 1st because that's what our ecommerce folks wanted. So, we believe very strongly that we will improve our margins and our returns, as Alan said a few moments ago, and we will get the benefits of the team.

Just want to add that. A lot of the CapEx that we're spending over the next few years is not to crease capacity at Express and it's to replace the 40 year old MD-10 and to drive better throughput, efficiency, productivity and lower costs at our two main hubs in Memphis and Indianapolis, those are big projects. Those have to be done for the long term of this company. And we do manage this business for the long term. Where I sit what I can see future cash flows is pretty impressive. I'm not going sit here and make projections, but I'm just telling you that we don't have to expand capacity at Express for quite a period of time. We need to a Ground, but we're doing that in a unique way. We are sweating the assets, we're going to run the network more days and we're going to be a lot busier out there. As we lower our costs to serve the residential delivery areas. We had a bad quarter. No doubt about it. I'm disappointed in it. But I'm not letting one bad quarter decide how we're going to manage this business for the next five years. I think that would be imprudent and not in the best interest of our shareholders, quite the contrary we got to redouble our efforts to get those costs down and those areas where we're seeing shorter zones and lighter weight. So that we can be as profitable as we need to be. And that's what we're working on. Now the way, let me just add in the December meeting, our voluntary buyout we listed 3 reasons for those. First is the multi-year transformation that we've been underway at FedEx called project renewal where we have taken down hundreds and hundreds…

Next, we'll go to Ben Hartford with Baird.

Just want to clarify some of the integration related expenses obviously you've raised at target a little bit, you push the timeline out to 2021. Just wanted to clarify, is the integration now going to take a little bit longer than expected and cost a little bit more? How should we interpret that data particularly the greater than $1.5 billion target? And how do we reconcile that in the context of the fact that the integration related expenses here in fiscal ‘19 are coming in a little bit less than expected?

Ben, I would say that, what we have found is that, what we've been talking you mostly about where the operational integration costs of putting these networks together. Again, as Raj talked to I mean, we're starting to get there and we're going to pick up a lot of momentum in FY 20. What we're seeing, however, is that as we -- as Raj and team continues to bring those antiquated systems up to current standards and beyond that we probably have some back office and other areas where we can do further investment. And so, we'll keep you updated on that. But far as operationally, we tend to be -- we think we're going to be there by the end of FY ‘20, and that's the biggest part. So, don't be scared about a lot of additional integration money. There won't be a lot additional [technical difficulty].

Our next question will come from David Ross with Stifel.

Fred, you did mention something looking past 3Q about green sprouts that you guys are seeing in March. Can you elaborate a little bit on what you're seeing today in the past two to three weeks, both domestically and internationally?

Well, let me, let the Chief Operating Officer talk about that because he's closer to it than I am, and I'm responding to you earlier I made those comments based on what he's telling me.

Hey, David, I think just to put it put it in perspective here. The inventory to sales ratio in the U.S. ran up in Q4 of calendar year ‘18. And so, we knew that the slowdown coming in Q1, it was just -- it was the pre-Chinese New Year. The peak was very muted, and the post-Chinese New Year was very, very soft. Having said that, in the last few days, we are starting to see some pickup in the business, and I think that's looking good. I’m going to sit here and project that's going to have -- what's going to happen for the rest of the quarter four, I cannot do that at this point. There’s still uncertainty in the market. But, if the trend continues then of course it'll be good news.

Let me add. I think there's been well reported in the trades. But prior to January the 1st, there was a significant amount of traffic that was put on the water beginning in late summer and in the fall, based on the deadline of January the 1st for the imposition of new tariffs. Now, the President decided to delay those, but there was a lot of inventory that was moved into the U.S. And you sort of saw the opposite side of that from China into Europe where they didn't have the tariffs. So, it was quite a different profile. So some of the follow activity during the first quarter, I think was a reflection of that inventory to sales ratio that Raj just mentioned to you. So hopefully now with the anticipation of a trade deal or at least a more can lead your conversation going on about it and in terms of tariffs, maybe we'll go back into a more normal cycle.

Next, we’ll take a question from Brian Ossenbeck with JP Morgan.

Just want to go back to Ground for a minute. You can talk about just the headwinds in the quarter. I know you mentioned the high labor costs, inflation, the 60 network filling up, but you most never see sequential decline in margins for that business, at least not to this degree. So maybe you can you give us some context as to, how much longer you expect those to persists especially the type of volume that you're filling up in the Ground network? And then lastly on the transformation, I guess, what gives you the confidence to be able to get the cost of serve down to the right level? And does that actually include increasing stock density in a meaningful way?

Well, if I answer the second question, I am sure the Board of Directors and Fed would bring me out of here for giving it away competitively sensitive data and information. So, I'm just going to tell you that it's going to be transformational. I'm highly confident about where we're headed. I've got a very good feeling about what our costs are going to be and how much volume we're going to be able to run to the ground network. As to the current trends, we did have a 3% yield increase in Ground. Frankly, we thought, we were going to a higher. Same thing as Brie and Raj have been talking to you about, mix change orders a little faster than we thought. Cost structure will get there and we're not -- I'm not worried about Grounds margins in the longer term. Although, I did tell you that I don't think they're going to pop back up in Q4 like we sometimes see because we have a lot of investment going on for these transformational things that we have underway. So, all I can say they're standby, but I'm confident about our Grounds long-term potential maintain those margins that you used to.

And David Vernon from Bernstein has our next question.

Alan, maybe just kind of following up on that question. Is there any way you can help us understand of the, sort of hub, the 170 basis points a margin compression here is business condition shortfall versus investment in the business versus cost inflation. I mean this seems like a pretty market turned down the margins near-term and I know you may have got, you guys have been expecting this from an investment standpoint, but it does seem like a little bit of a surprise from the outside looking in. And if you could help us understand, how long this investment periods is going to last? What is the impact of inflation and when that should lap off? And when -- or maybe when that should end? That will be helpful.

Yes. Same thing, I mean. We're working on FY20 business plan right now. Our largest customers have grown really fast at Ground, and of course they have the -- they enjoyed the best pricing. We are attacking as Brie and Raj told you the small and medium enterprises. We don't have our fair share yet at Grand in that area. We will. And then as I said, we're working really hard on our cost structure for residential and short-haul deliveries. And there'll be more to come on that.

And that does conclude our question-and-answer session at this time. And I'll turn the call back over to Mickey Foster for closing remarks.

Thank you for your participation FedEx Corporation third quarter earnings conference call. Feel free to call anyone on the Investor Relations team, if you have additional questions about FedEx. Thank you.

That does conclude our conference for today. Thank you for your participation. You may now disconnect.