Good day. And welcome to the FedEx Fiscal Year 2024 Third Quarter Earnings Call. All participants are in listen-only mode [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Jeni Hollander, Vice President of Investor Relations. Please go ahead.

Good afternoon. And welcome to FedEx Corporation's third quarter earnings conference call. The third quarter earnings release, Form 10-Q, and stat book are on our Web site at investors.fedex.com. This call and the accompanying slides are being streamed from our website where the replay and slides will be available for about one year. During our Q&A session, callers will be limited to one question to allow us to accommodate all those who would like to participate. Certain statements in this conference call may be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks, uncertainties and other factors that 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. Today's presentation also include certain non-GAAP financial measures. 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 Raj Subramaniam, President and CEO; Brie Carere, Executive Vice President, Chief Customer Officer; and John Dietrich, Executive Vice President and CFO. Now, I will turn it over to Raj.

Thank you, Jeni, and welcome to your first earnings call at FedEx. We're happy to have you on board leading the Investor Relations team. Before we discuss the quarter, I would like to congratulate Bob Carter on his upcoming retirement, which we announced last week. He has served as CIO for the last 24 years, leading FedEx in modernizing our IT infrastructure. I'm immensely grateful to Rob for his numerous contributions in establishing FedEx as an innovative, data driven and a people focused company. We thank him for his dedication and service to FedEx over the years and wish him well in his upcoming retirement. Thank you also to the FedEx team for their exceptional work in Q3 by providing superior service for customers and delivering strong results, all while advancing our transformation initiatives. For the third consecutive quarter, we delivered operating income growth and margin expansion in a declining revenue environment. This is a very positive dynamic and a unique one in our industry. It demonstrates clear progress on our transformation and ability to manage what's within our control through DRIVE. We're strengthening our value proposition, improving the customer experience and increasing profitability. This progress supports our long-term goals for sustainable margin expansion, improvements in ROIC and value creation for our stockholders. Now turning to the details. Our transformation is driving continued improvements in adjusted operating income, margins and earnings per share. At the enterprise level, we delivered a 16% improvement in adjusted operating income and adjusted margin expansion of 90 basis points compared to the prior year even as revenue declined 2%. Adjusted operating income growth was driven by continued strength at Ground and improvement at Express. At the segment level, I'm particularly pleased with the results at Ground where adjusted operating income increased 14% on 1% revenue…

Thank you, Raj, and good afternoon, everyone. First, I want to thank our FedEx team for strong performance during the peak season. As a result of their hard work and commitment, we once again delivered the best service offering in the industry. We continue to execute on our commercial priorities with a focus on revenue quality, while maintaining our industry leading service. As a result, we took profitable share in the quarter at market rates and we continued to retain the vast majority of the volume we gained from UPS in the second half of 2023. Our unmatched value proposition has enabled recent high value wins in the semiconductor, healthcare and aerospace industries. We will continue to execute our commercial strategy to compete and grow further in the high margin areas of the market. Looking now by geography. In the United States conditions have been weaker than we anticipated and internationally, we continue to see softness. We, however, remain very focused on strong commercial execution. Taking a look at third quarter revenue performance by segment. At FedEx Ground, revenue was up about 1% year-over-year on a modest yield improvement and flat volumes. Our team remains disciplined on growing with the right customers and mix, while offering the best value proposition in the industry. At FedEx Freight, revenue declined 3%. While volume decreased compared to last year, the year-over-year decline moderated on a sequential basis. Revenue was also negatively affected by lower fuel surcharges and a decrease in weight per shipment, although the decline was partially offset by higher base yields. And at FedEx Express, revenue was down 2% year-over-year, driven by continued volume softness, lower fuel and demand surcharges and a mix shift towards deferred and e-commerce products. The actions Raj outlined will allow us to profitably grow this business,…

Thanks, Brie. Our third quarter results reflect ongoing progress on our DRIVE initiatives, as well as our continued focus on service and revenue quality. As a result of these efforts, we delivered operating income growth and margin expansion for the third quarter in a row despite declining revenue in a challenging market environment. Taking a closer look at our performance in the quarter on a year-over-year basis and at the enterprise level, adjusted operating income increased by $192 million and adjusted operating margin expanded by 90 basis points. At Express, adjusted operating income increased by $134 million and adjusted operating margin expanded 130 basis points. The benefits of DRIVE initiatives and an additional operating date more than offset lower revenue. At Ground, the team delivered another quarter of strong results. Adjusted operating income increased by $120 million and adjusted operating margin expanded by 140 basis points due to cost reductions and yield improvement. Despite slightly lower volumes and in an inflationary environment, ground cost per package was flat year-over-year with lower line haul expenses and improved dock productivity offsetting higher first and last mile costs. And at Freight, while operating margin remained strong operating income declined by $46 million and operating margin declined by 170 basis points, driven by lower fuel surcharges, reduced weight per shipment and lower shipments. These results also reflect the lapping of a $30 million facility gain last year, partially offset by the benefit of an additional operating day during the quarter. Looking at the quarter overall, weather had an immaterial year-over-year effect on profitability. Before turning to the outlook, I'd like to spend a few moments updating you on our cost reduction initiatives, including DRIVE and more specifically G&A. As an initial matter and as part of responsible headcount management, we have reduced our workforce…

[Operator Instructions] Today's first question comes from Jordan Alliger with Goldman Sachs.

Thanks for the update on DRIVE. If I did the math right, I think there's about $385 million or so left for the final quarter of this fiscal year. Can you maybe talk to where you think this money or the savings, which buckets are going to go to surface, air, G&A? And I'm also just sort of curious on the surface side, how much of that is actually tied to Express surface stuff?

And I'm not going to speak specifically to the number you raised with regard to the remainder of the year on DRIVE except to say that we are committed to the $1.8 billion for the fiscal year. And I think it's safe to assume that's spread across all of our operating companies. And with regard to your question on surface, it's predominantly Ground. But as we continue to migrate towards Network 2.0 and through our DRIVE initiatives, there's a lot of complementary work that's being done together by the teams. So those savings are being realized both at Express and Ground.

The next question is from Tom Wadewitz with UBS.

I wanted to ask you a bit about the trajectory of the margin on Express, the February quarter was quite a bit better than expected. And I'm just wondering, how do we think about that as you go into fiscal '25? I think two specific items you did mention, one, the $600 million improvement in Europe that I think would go to Express and just kind of visibility on that? And also how we should think about postal where you had some comments. And I think that's been characterized as a $400 million headwind. So is it reasonable to say that that $400 million you kind of add back to the numbers? So anyway, just some broader comments on Express and some of the bigger items.

We're quite pleased with the progress we've made at Express and the margin expansion. As Raj mentioned, this is all of our primary focus to continue that expansion and we're excited about the opportunities that lie ahead for us in DRIVE. With regard to Europe, that will be a key focus area of ours and we are committed to the $600 million that you mentioned. And the Postal Service, certainly, as we're negotiating towards the deal, if that deal were to materialize, you would expect that it's mutually beneficial for both sides. So we're looking forward to bringing that to closure as soon as possible. And all of that will contribute to our ability to continue to expand our margins at our largest sector at Express.

The next question is from Jonathan Chappell with Evercore.

Brie, you’ve mentioned a competitive but rational market environment as it relates to pricing and yields. We are several quarters into the demand downturn here. And of course, there's been some competitive issues directly in your business. As we look forward, if we continue to kind of bounce along this bottom on demand internationally, but I think more specifically to the United States. Does the pricing environment start to waver at all a bit? Do you really need a macro tailwind before we can see maybe a stabilization or reacceleration of yield?

I think from a competitive environment perspective, yes, it is competitive, but I don't think that's particularly different in our industry. We're very used to a competitive environment and the market does feel quite rational to me. When we look at the yield, focus for the team, I'm actually pleased with the discipline of both the sales and the pricing organization. If you remove the fuel headwind across each one of our segments, Express, Ground and FedEx Freight, we have kind of low single digit yield improvement on the base. So I think the team is continuing to execute on our revenue quality strategy. And from a momentum perspective, we do have some headwinds this year that will diminish next year, especially in the international market. If you think about calendar year '23 from an air freight perspective, the overall air freight market yields decreased between 30% and 40%, that is not going to repeat next year. And then, of course, from an international demand surcharge, it will continue to be a headwind in FY25 but less of a headwind than this fiscal year.

The next question comes from Bascome Majors with Susquehanna.

So in June, you'll complete the legal consolidation of Express, Ground and Service as part of the One FedEx effort. Can you give us a look at how that will change, how you manage the business starting in July, how it will change how you report your financials and operating stats and operating stats? And can you give us some assurance that we'll get a deep history of comparable financial and operating data, help track your progress as you get further into the operational side of the integration in 2025, '26 and '27?

Bascome, let me start, and then John can add on to this. First of all, we are well on track to complete our consolidation of FedEx operating companies. This has been -- a lot of great work has already been done and into one streamlined and simplified organization. I think two words kind of describe this move, one is efficiency, the other one is effectiveness. I think we are looking forward to the structure that actually moves us forward on both fronts. And I think at the end of the day, this transformation efforts will set us up to drive improved performance and profitability over the long term. I'll give it to John to talk about the rest of it.

And from a reporting standpoint, and we'll be providing more details regarding the new reporting structure as we go forward. But I think it's fair to say that we'll continue to break out both Ground and Express yield and volume by service as we currently do and frankly, continue to provide sufficient data for you all to monitor the performance in those business segments.

The next question comes from David Vernon with Bernstein.

So Raj, in your prepared remarks, you talked about the Tricolor strategy and going after the premium air freight market. Could you talk a little bit more about what that is? I guess, I'd always been of the assumption that you guys led the premium part of the airfreight market and how does this realignment actually open up some revenue that maybe you don't have access to today?

I think I'm going to take a minute here to talk about Tricolor, because I think it's a good opportunity. So bear with me for the time I'm going to take here. Firstly, Tricolor is a fundamental redesign of our network to improve the utilization of assets, our ROIC, profitability and our operating margin. And first and foremost, our overall capacity will be determined by the demand environment and Tricolor will allow us to better flex our capacity to mass demand. Now within that capacities when we'll break it into three networks, purple, orange in white, we call it, and that cater to the different cohorts of traffic. The idea is to move the right product and the right network while reducing the cost to serve. The purple network will be a highly optimized and a leaner network designed to move international priority parcel volume that protects our value proposition in different geographies. Now this network now becomes much more parcel centric, will have significantly better service but also density, and that density will improve the revenue proposition and revenue per flight. Now turning to the orange network, that will cater to the premium freight traffic. And these are FedEx planes that will operate off cycle from the purple system, which allows two things. Firstly, it allows us the ability, once again, to maximize density and asset utilization. It also de-congest hubs and improve service. But most importantly, it allows a truck fly truck model that reduces the cost to serve. And in this context, it should be noted that we are fully leveraging the existing capacity in our trucking networks in the US and Europe. Prior to fiscal '24, we haven't really moved any international freight shipments in our market leading LTL network with FXF. And now it's already…

The next question comes from Brian Ossenbeck with J.P. Morgan.

Just wanted to come back and maybe better understand the moving pieces for Express during the quarter. Obviously, quite a strong result but there's often times some impact from fuel, incentive compensation, I think, there’s a bit of a tailwind here as that changed a little bit as well. So maybe -- and then weather, that was a pretty significant surprise considering it was as difficult as you mentioned, Raj, but it seems like it really didn't affect the network. So maybe, John, if you can unpack some of the moving pieces? And then Raj, if you can comment on the durability of the network if weather is just isn't going to be as big of an impact going forward?

I'll start with that last point, because I think it's worth repeating on the weather piece, which ties into some of our digital strategies and our ability to adapt, to allow for what was substantially poor weather here in Memphis to be rerouted in a manner that had an immaterial impact on us. So as you'd expect, there was a lot of moving parts at Express, both positive and negative and the levers of DRIVE, the focus on flight reductions. For example, we had 5% fewer flight hours in the quarter. And there are some additional benefits that flow from that on your cost side, because when you're not flying airplanes, you're able to avoid certain maintenance costs. The air ops team is doing an exceptional job of managing its cost for aircraft undergrounded, whether you're using what's called green time on engines that are available, limiting your inventory purchases and so forth. So it's really across the gamut where we're seeing improvement there, all in the midst of some revenue headwinds that Raj and Brie talked about. So we're going to continue to keep our head down and focused on our costs. One of the things I'd like to say this is a journey, not a destination and we still have a long way to go at Express, and it is our primary focus and look forward to keeping you posted on further improvements.

And Brian, I don't think I have much to add to what John has talked about. I think the idea that we use our latest and greatest in digital tools and the notion that we are now able to look at FedEx as a overarching network and able to move things helps us. Of course, we’ve got to -- you've got to see as the weather patterns that are very impossible to predict, but I'm just pleased with the work that we did this time around, and we'll continue to get better in this regard.

The next question comes from Jeff Kauffman with Vertical Research Partners.

Thank you for the detail on DRIVE. Jeni, welcome. Look forward to working with you. Real quick, the puck doesn't stay in one place, it's always moving around, and I think you're alluding to this with what you're doing with DRIVE and Tricolor. But I'm just kind of curious from your perspective. We announced this plan about what year and half ago back at the analyst meeting almost two years ago. How has the network design and some of the DRIVE goals when you're completed with this changed since you began this process?

Well, I think we introduced Tricolor in the last conference call and I think this design is just being put in place as we're speaking here. And so in terms of the DRIVE commitments, we had originally talked about $4 billion by FY25 and less than 50% in FY24, where we will hit those numbers, right, for FY24 and on track for FY25. And again, the other part of it, of course, is Network 2.0, which we said $2 billion by FY27, and that's underway. So with the focus on making sure that we have structural cost reductions, we have network redesigns with the whole FedEx portfolio in play. And the idea that we are moving forward on our digital tools, all three are working. And I think we've got work to do but we made some good progress. John is going to add more as just said.

I think what I would add to that as well is, to your comment about kind of changing environment, the teams meet weekly on this. And there are some programs that are delivering more than we expected and there are some programs that are delivering less than we expected, but we're always looking to fill the pipeline as well on additional opportunities. And that's an ongoing project and that speaks to DRIVE being part of our culture going forward, that's not going to stop. And we're going to adapt to a changing environment and I think that will help us as we move forward.

The next question comes from Ken Hoexter with Bank of America.

So Raj -- and I guess I love the results in terms of the speed here at Express, but I'm confused a bit by the messaging. Last quarter, you talked about seasonal declines at Express and what occurred from Express going down to -- which should be maybe near breakeven given the seasonal moves, yet it was up so significantly 130 basis points year-over-year. Was there a massive shift in the DRIVE or other programs or your speed of execution? Because it sounds like from what you're saying on the targets, nothing has really changed. But I'm just wondering what shifted intra-quarter so much that we're now seeing this quick of an improvement? And then just a side clarification. Did you say Canada was about to be rolled out, because I thought you had already said that with Hawaiian Alaska, Canada was done. So maybe I wanted to clarify that.

I'll start with the last one. It's about to be rolled out. It has not been completed and Brie can talk more about that in a minute. But Q3, as I mentioned earlier, was a combination of things. We saw, while the revenue was soft, we're focused on quality revenue, the cost controls were solid and strong and there were some other levers that were alluded to earlier. As you can see, variable comp, for example, is down. So that was a contributor. But all these things taken together resulted in us and our focus on improving our results for Q3.

And Ken, I'm just happy to clarify, from a Network 2.0 perspective, the Canada plan has not changed. Alaska and Hawaii are done and we are beginning the rollout of the integration in Canada that will begin this April, and we will be done before peak and it's on track.

The next question comes from Brandon Oglenski with Barclays.

Maybe if we can follow-up there on Network 2.0. Raj, I think you mentioned you've made some management changes on both Ground and Express surface operations in the US. Can you talk maybe a little bit more about that and how that plays into long term integration?

I think first of all, Network 2.0 is on track. Let me just take a step back here. You'll recall that we said we plan to deliver $2 billion in savings by the end of fiscal '27, and we are taking that measured and deliberate approach. And as we just rolled out our new leadership structure in the United States, and it's obviously a much more streamlined structure and much more effective structure and essentially with the goal of putting one truck and one neighborhood design into action. We are encouraged by the early results we're seeing in the initial rollout as well so far Network 2.0 model on the whole [teed] approximately 10% reduction in P&D costs and maintained very strong service levels. As we become more tech enabled in this regard, we'll deliver even greater improvements. And as we have already talked about, we are focused on implementation of Canada before peak. And I'm also happy to say that I'm very excited about Network 2.0 from a service perspective because it will drive a better customer pickup experience. So we are on our way, on track and again, some ways to go.

The next question is from Scott Group with Wolfe Research.

So John, this year is $1.8 billion of DRIVE savings and you've talked about $900 million of offset. So about $900 million of actual profit. As we think about fiscal '25, do you think the actual profit improvement should be closer to the $2.2 billion of DRIVE savings, or do you think there's another year of material offsets to that DRIVE in fiscal '25? And then just separately, just -- no one's asked about Ground yet and it's by far the biggest part of the business. So if I can just ask one on the margins 12% this year. Do you think there's further margin improvement to go at Ground?

And let me start by saying on that $2.2 billion, that's certainly our goal to have that all flow through. But we have to be realistic and understand that a lot of the pressures that we're seeing today are expected to continue for a while. And while we're going to continue to focus on those things within our control, there are certain things outside of our control. And so our goal is to have as much pass through to the bottom line as possible and we look forward to keeping you up to speed on that, including when we next talk in June. With regard to Ground, exceptional story, exceptional performance from the team. I believe those margins are sustainable. And there's still a number of projects in the pipeline that allow us to continue to grow and expand that business and those margins. So again, that's going to be our focus as well.

The next question comes from Helane Becker with TD Cowen.

I have, I guess, two questions. One is, as part of the whole redesign of the network and the business and collapsing everything into one. Have you thought about shifting to a calendar year rather than staying on a May fiscal year? And my second question is maybe for Raj. A lot of investors push back to me about the business that the way you're structuring the business, and I noticed the stock aftermarket was up quite a lot after the earnings release. Why do you think investors are so skeptical of your business plan and aren't willing to give you the credit that maybe you deserve for the changes you've made as speedily as you've made them?

I'll start on the first part on the calendar year. As you'd expect with everything going on, there's legal and accounting exercises that need to take place to get us through this next period, including June 1 date of One FedEx. But I can share, it's certainly on my radar to migrate towards that and we'll keep you posted on developments towards that.

And Helane, as part to your second question, all I can say is that we, as a team, are very much convinced that we have a unique story at FedEx here. At the opportunities that we have won in the industry is one thing, but within the industry, we have a unique opportunity because of the strategies that we have deployed. We started moving early than anybody else. We are performing better than our competition, both on the top and the bottom line. And we have a longer runway because of the opportunities we have identified. And so we will try to educate as many people as we possibly can on our strategy and where we are. But we are just seeing the early stages of what's possible at FedEx. Any one particular quarter sometimes kind of throw you off but the long term strategy is sound and we all believe in it, and it's going to be a good run in the next three, four years.

The next question is from Ravi Shanker with Morgan Stanley.

Apologies if I missed this, but regarding the USPS contract, kind of when do you expect that reach fruition? Is that something that happened in FY24 or '25? Can you also share how much of the volume has come off already and kind of how much would you dimension kind of that net with the new contract ends up being?

From a USPS contract, I really can't say more than I already said earlier. In short, we are feeling very positive about the negotiations, both parties are working eagerly, we're at the table. I think we are days or weeks away from knowing if we will have a contract, not months. And as we have shared previously, their current contract ends on September 29th. So we will know very, very soon. And I'm certainly not at liberty to talk about the details of a future contract.

The next question is from Stephanie Moore with Jefferies.

I appreciate the incremental color on Network 2.0. And I was hoping you could maybe provide a little bit of color in terms of some of the investments that have to be made in order to execute on the integration, particularly as you enter or you be in the execution in a much larger market like Canada. Any color in terms of maybe lessons learned from your Alaska and Hawaii integration and then what investments we should expect to see as you implemented in Canada?

Yes, certainly, there's going to be some investment required when you're consolidating facilities, particularly sort facilities but there's also upside in that you're able to reduce your facilities footprint along the way. So that will involve certainly some planning and processes, analysis and all that. But we're excited actually about the end game here and that is our overall footprint will far -- the benefits of that will far exceed the investment and contribute to a really efficient network.

And honestly, from lessons learned, I think the team feels really good about their execution to date, to Raj's point, we have seen kind of the P&D benefits that we anticipated as well as we've seen the team be able to execute from a service perspective. I will say we are being very disciplined, we're being very methodical and we are giving customers the advanced notice as we go into market. That was one piece of feedback for customers. Even though we anticipate being able to deliver the same level of service with the combined organization as we are as the individual, they do want that notification. And so we, of course, are giving customers that advanced notification. And to Raj's point, on the positive, I cannot under-emphasize how important that single pickup is to our small customer segment. This has been the only feature gap we had to UPS in that segment and we are about to close it. So I'm pretty excited about that.

The next question is from Bruce Chan with Stifel.

I don't know if you've really talked about it, but we've been hearing that you've had some pretty material service improvements, especially at Ground over the last, call it, a year or so and that's despite the cost savings push. Can you maybe just talk about that a little bit, where are the service levels today, what are the levers that you're pulling? And then what kind of opportunity do you have to drive core pricing as a result of that?

John Smith and Scott Ray are crushing it. When we went back and looked at our Q4 the toughest quarter to -- I should say, Q4 calendar year, the toughest quarter to deliver awesome service, not only are we faster, I am quite confident, we -- on those higher standards, from a delivery service perspective, we also had better reliability. How are they doing this? It's discipline. It's day in and day out execution. We look at our service metrics every single morning. We talk about Net Promoter Score every week at our Revenue Management Committee. And to Raj's coverage, on the integrated leadership team now with the service organization, we absolutely expect to extend that across the entire network, and I just could not be more appreciative of our operators and how well they're doing.

Yes, I wanted Brie to answer that question because she holds their feet to the fire every single day. So I'm glad that you heard that answer directly from Brie.

The next question is from Conor Cunningham with Melius Research.

I was hoping you could talk about the opportunity you see just with the e-commerce return business. You've obviously been a big player there. But there's been a lot of changes in the network. Is that now a larger focus? The reason why I asked, and obviously, there's been a press report about you reengaging with Amazon. Just any thoughts there would be helpful.

I think we've got the best returns portfolio in the market. When you look at our retail coverage as well as our transportation solution, it is best-in-class. And when we looked at our January numbers, the FedEx Ground returns portfolio did see some healthy growth. You layer that on with the new announcement of our FDX platform, we are going to be the only provider that has not only the physical capabilities but a very comprehensive digital capability. And what do I mean by that? We are going to be able to help all retailers, brands and merchants process their returns on their Web site, manage their exchanges, manage the inventory, integrate their branded tracking and communications to customers. It's a really powerful offering. As I mentioned earlier, we started to preview this with some customers. We've got some pretty big names in what we're calling our private preview. And I look forward to sharing more results once we do the full launch later in the fall. I think I'll stop there. I'm enthusiastic about this…

I'll just say this much, when we integrated of these customers, even I can program and there's no cohort environment I can set up the returns policy. So if I can do that, anyone can do it.

The next question is from Scott Schneeberger with Oppenheimer.

It's basically two questions, one is a follow-up to Bruce’s. Brie, I was hoping if you could kind of give an overview of peak season, kind of takeaways learnings. And then I think we have five less calendar days for the 2024 calendar peak. So just things that you're going to learn and manage ahead of time as it's a much more condensed season? And then the second question is for any of you, but just in Ground cost per package, it was down 2% in the fiscal second quarter. And you cited improved first and last mile productivity, flat here in this quarter and offset was higher first and last mile cost. Just curious if there's anything we should read into there.

I think from a peak perspective, we're really pleased with how we're managing peak from a service, from a customer and from a profitability perspective. First and foremost, the team starts literally now for this coming peak. And what do I mean by that? We are already talking to customers about what their peak requirements are for next year. And so that John and Scott have advanced planning. And then, of course, as we get closer to peak, we take the top 100 customers and we are managing forecast on a weekly basis. I think some of the integrated planning that we are doing with Dataworks is also incredibly helpful so that we have real time information. We're not waiting for spreadsheets should be passed over, but we've actually got real time visibility into some of our largest customers, which has been incredibly helpful. So I don't anticipate us doing much different this year but more of the same. And again, I also was really pleased with the peak surcharge capture. We are ensuring that the customers that really drive the investment we need in December we're getting recruited for that cost. So we feel good.

And I'll speak to the Ground piece. And I think one of the drivers of the margin expansion and cost control at Ground was lower line haul expense that I alluded to. And we moved a lot of high cost and ad hoc external line-haul spend into our scheduled network. And as a result, achieved lower rates on the planned line haul purchase transportation. And this is all part of a broader optimization and ongoing optimization that's taking place in the network through DRIVE and through Network 2.0. And so every aspect and even those first and last mile will be part of that. And we're also leveraging the capacity that we have. And we do have some additional capacity in the ground network that can absorb additional volumes at no incremental cost. So that should help improve margins as well.

This concludes our question-and-answer session. I would like to turn the conference back over to Raj Subramaniam for any closing remarks.

Thank you, operator. In closing, we saw continued operating income growth, margin expansion despite lower revenue for the third consecutive quarter, and this is clear evidence that DRIVE is working. While these results are encouraging, it is our top priority to maintain momentum and continue to transform our network and the way we work. Once again, let me thank our FedEx team members for their hard work and dedication to delivering outstanding customer service. I'm really proud of the work that we have accomplished as we continue to build the world's most flexible, efficient and intelligent network. Thank you for your time and attention today.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.