Mickey Foster – VP of IR Fred Smith – Chairman and CEO Mike Glenn – President & CEO FedEx Services Alan Graf – EVP & CFO Dave Bronczek – President & CEO FedEx Express Henry Maier – President & CEO of FedEx Ground Bill Logue - President and CEO of FedEx Freight

Robert Salmon - Deutsche Bank Nate Brochmann - William Blair Ben Hartford - Robert Baird Chris Wetherbee – Citigroup Ken Hoexter – BofA Merrill Lynch Kelly Dougherty – Macquarie Capital Scott Schneeberger – Oppenheimer & Co. Jack Atkins - Stephens Art Hatfield - Raymond James Donald Broughton - Avondale Partners Scott Group – Wolfe Research Allison Landry – Credit Suisse Bill Greene – Morgan Stanley Tom Wadewitz - UBS Brandon Oglenski – Barclays Capital David Ross - Stifel Nicolaus Thomas Kim – Goldman Sachs Kevin Sterling - BB&T Capital Markets Jeff Kauffman - Buckingham Research David Vernon – Sanford C. Bernstein

Good day, and welcome to the FedEx Corporation second quarter fiscal year 2015 earnings conference call. Today's call is being recorded. At this time, I'd like to turn the conference over to Mickey Foster, Vice President of Investor Relations for FedEx Corporation. Please go ahead.

Good morning, and welcome to FedEx Corporation's second quarter earnings conference call. The earnings release and our 26-page stat book are on our website at FedEx.com. This call is being broadcast from our website, and the replay and podcast will be available for about 1 year. Joining us on the call today are members of the media. During our Q&A session, callers will be limited to one question in order to allow us to accommodate all those who would like to participate. If you're listening to the call through our live webcast, feel free to submit your question via e-mail or as a message on stocktwits.com. For example, please include your full name and contact information with your question and send it to our IR@fedex.com address. To send a question via stocktwits.com, please be sure to include $FedEx in the message. 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 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. To the extent we disclose any non-GAAP financial measures on this call, please refer to the Investor Relations portion of our website at FedEx.com for a reconciliation of such measures to the most 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, Dave Bronczek, President and CEO of FedEx Express, Henry Maier, President and CEO of FedEx Ground, and Bill Logue, President and CEO of FedEx Freight. And now our Chairman, Fred Smith, will share his views on the quarter.

Thank you, Mickey. Good morning everyone and welcome to our discussion of results for the second quarter of fiscal 2015. FedEx posted strong results and a higher operating margin with earnings up year over year 36% per share with continued growth in volumes and base yields in our transportation segments. Results also were positively affected by the benefits from our ongoing FedEx Express profit improvement program which is on track. We expect revenue and earnings growth to continue into the third quarter and the remainder of 2015, driven by ongoing improvements in the results of our transportation segments. As we enter the final stages of this year’s peak shipping season, I’d like to thank the more than 300,000 dedicated team members around the world for again delivering outstanding service to FedEx customers during the holidays. We’re very pleased with our plans for two transformative acquisitions announced earlier this week that will expand existing service offerings in the retail, ecommerce and international markets. Mike Glenn will provide additional details in his remarks on these acquisitions. Before turning the call over to Mike and Alan Graf, I would like to recognize Bill Logue, our long term colleague and business partner who is retiring as President and CEO of FedEx Freight on December 31. Mike Ducker, a 40-year veteran of FedEx and currently Chief Operating Officer of FedEx Express will succeed Bill and he is here today as well. After 25 years of distinguished service to FedEx, Bill leaves with our gratitude, our support, our friendship and best wishes for a long and healthy future. Mike Glenn?

Thank you, Fred and good morning. First, I would like to take this opportunity to reiterate Fred’s comments and thank our team members as they work around the clock to deliver the holidays for customers worldwide. The dedication of our team members combined with the investments that we have made in our networks have allowed us to deliver outstanding results despite weather and all the challenges that we encounter during the holiday season. While we are still in the heart of peak season, there are several trends and developments that are affecting the season, including labor issues at the West Coast ports that have affected productivity and impacted retailers’ ability to get inventory where it’s needed and when it is needed. This issue has impacted our operations as we’ve made adjustments to capacity in key markets to support our customers facing these ongoing port slowdowns. In some situations, the slowdowns have caused unexpected shifts in retail and etail customer needs in certain markets and we put limits on customer volumes in order to ensure we meet our service commitments. Despite these challenges and significant weather events during the peak season both in the Northeast and on the West Coast, I am proud to report that we’ve been able to maintain outstanding levels of service across our networks. We’ve already delivered multiple days this peak season that ranked among the busiest in the history of the company and our service levels have been terrific. Also, I want to briefly discuss the two acquisitions that were announced this week that are transformative in terms of the FedEx portfolio of ecommerce and supply chain solutions. GENCO is one of the largest third-party logistics providers in North America. They have a broad range of product lifecycle and supply chain services that will significantly expand our portfolio, including a market leading position in returns, test and repair, remarketing and product liquidation. GENCO processes more than 600 million return items annually from many of the world’s leading brands. In Bongo International, we’ve acquired a leader in global cross-border ecommerce technology and solutions. Bongo’s technology and processes provide a comprehensive end to end solution that helps retailers and etailers grow by reaching international ecommerce consumers. Bongo is delivering cross-border enablement solutions to a base of more than 2000 retailers to more than 200 countries worldwide. These acquisitions will transform our global portfolio through the addition of new best-in-class ecommerce and supply chain management solutions. Moving on to our overall economic outlook, the fundamentals of the US economy continue to improve and expectation is for real GDP growth to average around 3% for the next several quarters. Our US GDP forecast is 3.1% for calendar ‘15 and we expect industrial production to grow at 3.9% in calendar ’15. Global economic growth is expected to broaden with the US leading and emerging markets picking up. We expect global growth of 3% in calendar ’15. Now let me make a couple of comments regarding the company's yield performance by segment. Excluding the impact of fuel, year-over-year Express domestic package yields declined slightly by 0.4%. While we experienced a positive impact from rate and discount, it was more than offset by a lower weight per package due to an increase in e-commerce and telecommunications traffic. In the ground segment, yield per package excluding Smart Post increased 3.3% year-over-year, excluding the fuel surcharge, driven primarily by rate and discount. For Smart Post, yield increased 7.8% year-over-year without fuel, which was driven by a change in customer mix. In the international export segment, excluding fuel, yield per package increased 0.7% which again was driven by a product mix and rate and discount. And finally, excluding the impact of fuel, yield per shipment increased 2.3% at FedEx Freight. The increase was driven by rate and discount and changes in weight per shipment. And now I’ll turn it over to Alan Graf.

Thank you, Mike and good morning everyone. We had a spectacular second quarter as our earnings per share grew 36% to $2.14. Corporate margin rose 120 basis points year-over-year to 8.5%. Revenue grew 5% to $11.9 billion from increased volumes and generally higher base yields, which drove a significant increase in earnings for each of our transportation segments. At Express, Q2 operating income increased 36% and operating margin increased 170 basis points year-over-year, driven by the revenue growth in our US and international export business, cost management related to the profit improvement program and lower pension expense. US domestic volumes increased 7% in Q2 driven by both overnight and deferred service offerings. And international export volumes increased 2%. The net impact of fuel had only a slight benefit to operating income. Maintenance and repairs expense increased 16% due to the timing of aircraft maintenance events. Operating expense growth was favourably impacted by the profit improvement actions at Express. Turning to ground, segment revenues increased 8% due to volume and yield growth at ground and yield growth at Smart Post, partially offset by lower volumes at Smart Post. Average daily volume at ground increased 5% and operating income increased 6% driven by higher revenue per package and the volume increase. Higher network expansion costs partially offset the increase in operating income as we continued to invest in the high margin higher ROIC growing ground businesses. Freight had another great quarter with 35% higher operating income and operating margin up 130 basis points year-over-year. Higher less-than truckload revenue per shipment and higher average daily LTL shipments drove operating income and margin higher. Average LTL shipments increased daily 8% and revenue increased 11% year-over-year. I want to speak a little about our fuel surcharge and our fuel surcharge tables. FedEx regular reviews its fuel surcharge tables and will update certain tables at Express, Ground, and Freight effective February 2, 2015. While second quarter results benefitted slightly year-over-year from the net impact of fuel, due to lower fuel prices this year versus last, the year-over-year reduction in fuel surcharge revenue largely offset the benefit of the lower fuel prices. Understanding the net year-over-year impact to fuel on our results involves three key considerations: timing lags and adjustments to our fuel surcharges; the structure of the fuel surcharge tables and the manner in which we purchase fuel. Our fuel surcharges for Express and Ground incorporate a timing lag of approximately 6 to 8 weeks before they are adjusted for changes in fuel prices. For example, fuel surcharge index in effect at Express in November was set based on September fuel prices. Additionally, the structure of the fuel surcharge tables for Express and Ground does not adjust for direct changes in fuel price but allows for the fuel surcharge revenue charge to your customers to remain unchanged as long as fuel prices remain within certain bands. Finally, we purchase fuel under our contractual arrangements tied to various indices around the world. Approximately 75% of our jet fuel is purchased based on the index price for the preceding week with the remainder of our purchases tied to the index for the preceding month, rather than based on daily spot rates. While the daily spot price of jet fuel declined almost 30% from the end of August to the end November, the average monthly price we paid for jet fuel under our contractual arrangements did not change by a corresponding amount. As a result, the average price per gallon for jet fuel in Q2 only declined 8% quarter over quarter or 10% year-over-year. Collectively, these three considerations affect the net impact of fuel on our results in the short term. An expanded discussion of the net impact of fuel is available in our first quarter 10-Q and will also be available in the second quarter 10-Q when filed tomorrow. Turning now to the outlook. Based on the economic outlook that Mike outlined, we reaffirm our FY15 earnings-per-share forecast of $8.50 to $9. The outlook assumes continued moderate economic growth and modest net benefit from fuel. We expect revenue and earnings growth to continue for the rest of the year as moderate global economic growth drives volume and yield. Our results could be constrained by the funding of incentive compensation programs. Our FY15 results will continue to benefit from the profit improvement programs and will also benefit from lower pension expense. In closing, I would like to thank all of our team members for their hard work and dedication during our very busy peak season. I'm very proud to be part of such an amazing team. We will open the call for questions.

[Operator Instructions] We will take our first question from Robert Salmon with Deutsche Bank.

Alan, perhaps you could elaborate a little bit more in terms of the ground margins. What caused the contraction in the second quarter? It looks like other expense was a little bit higher than we are anticipating. I'm sure also the Cyber week as well as the investments played out. And then with regard to the Genco acquisition, can you give us a sense if there's any revenue synergy opportunities? It looks like they managed about – got visibility into about 3.5 billion related to small package spend. How much of that is currently being managed by -- is currently running through FedEx versus other competitors?

Hi Robert, this is Henry Maier. Q2 margins declined slightly due to investments in our network, many of which were in preparation for peak. The calendar this year was the same as last year. There’s only one more shopping day between Black Friday and Christmas Eve. Many of these peak related investments are driven by what customers tell us they think their volumes will be during the holiday season. So most of what you're seeing in margin decline is the result of short-term investments we make for peak. Now let me say this. Once peak ends, we will share [ph] this cost as quickly as we possibly can and we remain committed to high teens margins in the ground segment. Alan Graf : As to the Genco question, of course there are revenue synergies. We love this acquisition for all the reasons that Mike outlined and for that fact, and we are excited, can’t wait to get it closed and get it working for us.

Thank you. Our next question comes from Nate Brochmann with William Blair. Nate Brochmann : Alan, maybe just to follow up on the Genco acquisition. And I might be a little bit misplaced on this but I recall back in the day of you guys kind of saying that you didn't really want to get that deep into inventory logistics management. And I certainly have known the Genco guys for a while and I think they bring a great asset to your organization, kind of probably fill a gap. I was wondering if you could talk a little bit in terms of just strategically where the thinking lies in terms of what Genco brings to you, and maybe what other gaps you might look at in terms of your overall logistics framework in terms of where the market is moving and why that’s so valuable?

This Fred Smith speaking and I am going to turn it over to Mike Glenn. In years past we were not particularly enamored of the so-called 3PL business because it was a relatively low margin business that saw a lot of loss of contracts on the first renewal. It was more of a commodity type of business and one of the big sales pitches of a lot of 3PLs was that they were carrier agnostic in terms of the transport system that they used. What of course has happened over the decades since we expressed those remarks is the entire logistics and retailing sector has changed particularly with the emergence of e-commerce and the empowered consommé [ph] with mobile phones and electronic devices that allow them to order and move their shipments around. So the attractive part of Genco was that it had sailed directly with those wins into the market leadership in the reverse logistics space and with the substantial market presence that we have particularly with FedEx Ground and FedEx Smart Post in that sector, it was just a natural fit. So our view about that business in the main hasn’t particularly changed but world has changed. And this was really a great fit, the culture was a perfect, the management team is terrific, very high ROIC asset light which complements some of our more capital intensive businesses and Herb Shear and his team has just done a great job of building this business over the years and we’re just very happy to get it and that’s the reason that we changed our opinion about the business and it's also why we were very very careful in getting the right candidate that fit all those criteria that I just mentioned. Mike?

I just had a couple comments. Genco’s expertise in infrastructure and targeted verticals and specifically in technology, healthcare and retail all complement the FedEx portfolio of services and those have been industry segments we’ve been interested in for a long, long time. In my opening remarks, I mentioned that Genco processes more than 600 million return items annually and that's a critical decision criteria when developing relationships with our e-commerce customers. I don’t have to tell this group that returns in the e-commerce segment are more important issue than they are in a typical retail channel, represent a larger percentage of overall sales. So it's critical we have these capabilities and as Fred mentioned Genco is the perfect partner.

This is Henry Maier. Can I just add something here at the end? Genco is a company that we have admired for many years. Culture is, we believe, a perfect alignment with the FedEx culture as Fred and Mike have said they have an excellent management team. And like FedEx Ground, Genco was proud to call Pittsburgh home and I think this just reinforces our commitment to the region.

Thank you. Our next question comes from Ben Hartford with Robert Baird. Ben Hartford : Just looking for a little bit of perspective on the 4Q peak, and how you may or may not be benefiting from some of the tightness that we’re seeing in that Asia to US land. Maybe you can just walk through, just the puts and takes, I understand the capacity has been tight out of key gateways out of Asia, leading up to recent weeks. You talked about some of the limits on customer volumes that you’d implemented, so I imagine load factors are high. But I'm curious to what extent you are able to participate in the strength in the spot market as it relates to pricing with some of the volumes against potentially having to pay more for third party capacity into that context, as well as if you could provide some perspective there? And then also maybe speak to how you see the transpacific market developing in 2015 given this volatility that we’re seeing in this year’s peak, is it episodic or is it something that can be more sustained?

Yes, hi, this is Dave Bronczek. First of all, we are able to participate quite a lot. We have extra sections that we can fly into Asia. We've done that consistently through the months now in December. We've seen a lot of demand quite frankly that has come along because of what Mike pointed out on the port issue in Long Beach. So yes we have tight capacity but we’re able to manage our capacity globally because of our extra sections that we can put in. So I would say that from a perspective -- from Express’ point of view we’ve been very very successful in managing through this.

I would add just a couple of comments on peak in general. I think we've seen some shifts here that will be positives for the long haul and that is demand is really shifting more towards the entire peak season rather than on specific days. I'm sure you've noticed that the Black Friday and Cyber Monday events have become more of weeklong events to really de-pressurize those days a bit and I think those are challenges that that e-commerce companies and retailers are working through but I think will be a positive impact on the peak season overall going forward.

This is Dave Bronczek. Again just one more thing to add to what Mike said. We’re seeing strong demand obviously through December. It's been more rational though it’s been spread out. The volumes have been strong but our service has been outstanding. We've had good weather to go along with it but I just wanted to make that point as well.

Thank you. Our next question comes from Chris Wetherbee with Citi. Chris Wetherbee : I was just wondering if maybe you could give a little bit more color of sort of what the benefit of the profit improvement was in the quarter, and maybe sort of order of magnitude relative to the benefit, I think that you said was slight from fuel within Express and then just thinking sort of on that Express note as you look into fiscal third-quarter, Alan, would you expect sort of what we have seen with this continued step-down in jet fuel prices to provide in a bigger benefit to the third quarter, is it being – if you can add [ph] a little bit more in line with the type of benefit you saw in fiscal 2Q?

Well let me start off. This is Dave Bronczek again. Our profit improvement plan is working, it’s on tract, our management team is successfully executing, I am very very proud of them. Along with the profit improvement, our service has been outstanding as well. I wanted to make that point to our management team. But from a profit improvement perspective, in Q2 fuel had a slight positive to FedEx Express. I know many of you had written that our profits for the quarter would be very high relatively speaking and they are – we’re up 36%, 170 basis points but only a slight improvement in fuel that went along with that. And when you think about it, our expenses were only up 1% for the quarter -- and for the quarter and our volumes were up 7% in the US, 2% internationally, and as Mike pointed our yields were all up. So our profit improvement plan is really driving most of our success.

This is Alan. I think we’re continuing to do exactly what we described we were going to do. The revenue outlook at Express particularly in the domestic business is very good because services are still outstanding. Our costs at Express are significantly prominently lower than they would have been had we not done the profit improvement program, and those are going to carry through throughout. We haven't backfilled one person and don't intend to. So it’s steady as she goes. We’re exactly where we told you we would be when we had our fourth quarter earnings call for the year and we will just continue sailing. As far as fuel as I said, very little improvement for the year as a result of fuel based on where our new fuel surcharge tables will be and where we think fuel will be. So we’re getting in from the old-fashioned way which is good solid service and unbelievable cost management.

Thank you. Our next question comes from Ken Hoexter with Merrill Lynch.

Can you talk about the scale of the ground investments? Were these a surprise addition or do you expect margins to deteriorate in your prior outlook on a year-over-year basis? And then can you delve into the incentive comp commentary and what that's expected to impact margins as we go forward?

Ken, this is Henry Maier. I mean concerning the ground margins, there is nothing unusual here. I mean we plan for peak every year, it’s a 12 month exercise. We start working with customers in August based on what they tell us they are going to need in terms of capacity for the peak season. We make peak investments accordingly. The rest of this is just normal network investments for organic growth.

This is Alan. I would also say that – reference back to what Mike said, looks like peak is more spread out than in years past. So while we had a great November at Ground, it was a little bit lower than we had planned for and we put in all that peak planning cost and everything. So it had a little bit of an impact and as we noted, Smart Post is down year-over-year because of one customer. So we’re very happy with where ground is. It’s going to continue to have a great year and a great next year.

We have an email question coming in from William Flinn from Potomac, and the question is - in the second quarter, Freight revenues were up 11% and operating income was up 45%; how much of this excellent execution was due to yield initiatives versus market share gains? We did have an excellent quarter at FedEx Freight and I am particularly proud of the collaboration between our sales and marketing team and the freight operations team. We spent a lot of time working to make sure that we get the right amount of traffic in the network at the right yields. And the answer to the question is the combination of both. We continue to take share in the segment. Due to our industry-leading value proposition and our sales team is executing crisply and I need to mention our pricing team as well, they've done a phenomenal job working with our sales and operations team to make sure that we’re getting the traffic in at the right yields to ensure that drops to the bottom line. So it's a terrific quarter for Freight. We’re very proud of that, we’re very proud of the collaboration we have with the Freight team.

I will jump in; this is Bill. And again as Mike said, we’re very pleased with the quarter, up 35% in OI and we’ve seen some great performance in the revenue quality area and commitments from all the sales team, our pricing team and partners. So that’s very encouraging going forward. And again the ops team continue to do a great job in the frontline service to our employees – to our customers and that’s where we’re seeing outstanding continued growth in our business. So we’re very pleased with the quarter.

And let me correct I read the question as submitted, it said operating income was up 45%, as Bill noted, it was actually up 35%. But I read the question as submitted.

Thank you. Our next question comes from Kelly Dougherty with Macquarie. Kelly Dougherty : Hi, thanks for taking the question. After your last call you announced plans for a buyback that seems primarily to offset the dilution. So can you help us think about plans to return more capital to shareholders especially as your free cash flow ramps or maybe now that it seems to be you're in more of an acquisitive mode. That buyback is a return of capital and may take a backseat to that at least for the time being?

This is Alan. We are going to continue to buy back shares. We will probably do at a lower pace than we did when we did the initial one. We’re certainly going to at least prevent dilution from our comp programs. We may or may not go further than that. We also review our dividend at the end of every fiscal year with our board and you should not assume that the Genco and Bongo acquisitions only way we’re going to change that because we have plenty of cash flow to go around to solve both of those issues.

Thank you. Our next question comes from Scott Schneeberger with Oppenheimer. Scott Schneeberger : Thanks, good morning. Could you address in the Freight segment some of the puts and takes in the quarter, specifically with regard to the margin and how you see that developing over the back half of the year?

Yes, Scott, this is Bill. Again, good quarter up 35% on the operating income and in the quarter we took a well deserved pay increase in October for our frontline teams, so between that and other compensations and healthcare costs, that was a pretty big headwind on our numbers and we still came back with a 35% improvement. So again we're pretty excited about that and going forward we'll have a little bit of headwind in Q3, Q4 from the October pay increases but again we're still very excited about where we're going here in the second half.

Next question comes from Jack Atkins with Stephens. Jack Atkins : Great. Thanks for the time this morning guys. I guess this question is for Fred or Dave. I'd be curious to get your thoughts on how the lower oil prices that we've seen over the past couple of months will impact international air freight demand especially if we see a period of sustained low fuel costs. Do you think that's going to help drive increased demand for your higher yielding more time sensitive services in the portfolio?

This is Dave. Absolutely. We do believe that's correct. We've positioned our global powerful network around the world with exactly the right infrastructure, we have the 777s of course that are now flying non-stop out of Asia Pacific and around the world. So we think that the decrease in oil is going to have an increase in customers demand for higher yielding products.

Thank you. Our next question comes from Art Hatfield with Raymond James. Art Hatfield : Good morning everyone and Bill, good luck in your retirement. Just to go back to the ground margins and Alan, I think you commented that November while strong didn't live up to kind of what you thought it would. Is that a function of customers just didn't hit the level of demand they thought or is it a timing issue where some of that actually got pushed into December?

Art, it’s Henry Maier. I guess I'd answer that both. November volumes were softer than our expectations but you need to know that this is not at all unusual in this new ecommerce economy. Over the last several peak seasons we have regularly observed situations where volume hasn't always come where we expected it or come when we expected it but one thing has been certain, it always comes.

This is Fred Smith speaking. Let me put a little color on an issue that I think has been underreported and I suspect you're going to hear a lot more about in January when the retailers start putting their results out. The slowdown in the West Coast ports has been a much bigger deal than people think and a tremendous amount of inventory was simply not put through the ports in the timeframe that the retailers had expected. This in turn has led to a lot of not in stocks and one of the things that Henry has had to deal with that's extremely important is that because these delays at the port, at the West Coast ports and the East Coast ports because a lot of people saw this coming and diverted traffic into the East Coast ports, we received a lot of traffic on the two coasts which normally we would have anticipated getting from distribution centers in the middle of the country. So we've had to move power where the customers needed it but that has slowed down a lot of the retailing activity in late November and early December and led to a lot of not in stock. So I suspect that you'll see a lot of purchases of gift cards in lieu of merchandise and in January you'll see some of that traffic moving in the truckload sector and elsewhere into the retailing brick and mortar system. The second thing that's very different this year and it's something that you should pay attention to is a lot of traditional retailers have gotten very, very good at ecommerce in terms of their marketing and their apps and their ability to sell things online. What they haven't gotten as good at in some cases is processing those orders and getting them out the door and so some of the major retailers that we deal with particularly in Henry's organization were telling us in November that they were seeing orders but the orders were backlogged. And so we are seeing a great deal of that traffic now moving into the December timeframe but I do think you'll see when the retailers report their results that the West Coast port issue has been a bigger deal for the peak season than most people have thought it was to date.

Thank you. Our next question comes from Donald Broughton with Avondale Partners. Donald Broughton : Yes, gentlemen. One of the biggest variances between what we were looking for and what you reported was certainly in the maintenance line. You said it was timing of aircraft maintenance. Can you give us a little bit more color, a little bit more understanding if for no other reason than we can model it better in the future?

It's Alan. Dave can add to this. It's timing. It has to do largely with MD10s and to some extent MD11 engine maintenance. It will probably continue in the third quarter and then it will start to mitigate and we should see much more normal comparisons going forward from there. It was expected, it was in our guidance, we needed to do it particularly on the MD10s to keep the reliability up and that's why we are getting 767s.

Well, Alan said it, and I think it’s in the press release. Our fourth quarter aircraft maintenance costs subside, so that's probably what you're looking for and it's in the written report. Even with the 16% increase in aircraft maintenance expense this quarter, our all up expense for the quarter was 1%.

Thank you. Our next question comes from Scott Group with Wolfe Research. Scott Group : Thanks, good morning guys. I'm not sure if I missed it. Can you share with us or are you going to disclose how much you paid for Genco and how you're going to finance it? And then just on that maintenance question from earlier, what's the total aircraft maintenance up this year in the guidance and does it go down next year or does it kind of flatten out next year and not increase further?

We are not going to disclose what we paid for Genco at this point. We will, down the road. I'll let Dave handle the maintenance thing and oh, by the way Scott, I know you were disappointed in our results but I sure am not.

Yes, hi, this is Dave. Our aircraft maintenance is flat year-over-year and it subsides, the costs still of course continue but they continue at a lower level.

This is Fred Smith. Let me make one other point here which is essentially you understand and Dave Bronczek's results, his expenses are only up 1% but the Express unit also had a wage increase effective on the first of October as we did corporate wide and in the United States network. And so his productivity is absorbing a lot of expense increase in addition to benefiting from the macro profit improvement program.

Thank you. Our next question comes from Allison Landry with Credit Suisse. Allison Landry : Good morning. Thanks for taking my question. So you mentioned earlier that an improved consumer should help some of the premium products. So I was just wondering if that's actually dialed into your guidance.

This is Fred Smith speaking. I'll let Mike put color on this. I think as he mentioned in our macroeconomic outlook we're looking for a 3.1% US 2015 GDP increase and a 3% global increase. I think that a lot of the euphoria that people are seeing with the lower fuel prices at the pump for consumers and things of that nature will to some degree be offset by the reduction in CapEx and the oil and gas exploration and production sector. I mean the facts of the matter are that capital expenditures are a huge driver of US prosperity and income and you see that over on the consumer side just as well as you do lower gasoline prices. So I think it's not quite the universal good that some people think it may be. Now having said that consumer confidence and so forth is a very big deal in our economy which is 70% consumption but just be a little bit careful there about assuming that the economy is off to the races with all of the pressure that's going to be on this oil and gas sector which has been a huge part of the increase in GDP over the last several years. Mike?

Yes, let me make a comment and kind of give you an analogy. One of the strategic moves that we made in the FedEx Freight network was to adjust the network so that whether we grew in priority or economy freight we benefited from that and a lot of our strategy in the international line haul network and providing the flexibility in the network has been designed around that same philosophy. So while we do expect to see some lift, those things tend not to happen as fast as you might think and so the network design we have in place allows us to flex based upon demand so we're quite comfortable with where we sit at this point.

Thank you. Our next question comes from Bill Greene with Morgan Stanley. Bill Greene : Hi good morning. Mike, I wanted to ask your thoughts on some access the post office has been taking, so trying to compete a bit more in B to C with price actions but also in the holidays here delivering seven days a week. It seems to me that you guys probably compete very vigorously every day but competing against the government doesn't seem quite fair either. So like what's your view on this? Are they a meaningful competitor in that market or is it not really something you come across?

Well of course a lot of the traffic that moves through the postal service actually moves on our line haul network. So we see that day in and day out and we have a very good relationship with the postal service. I'm assuming you're talking about some of the pricing changes they've made to address really the low weight segment in order to take advantage of some ecommerce capabilities. I think the thing you need to keep in mind is their network is very different than ours. They tend to operate smaller vehicles that really cube out pretty quickly as opposed to the network we have in place. The lighter weight ecommerce traffic that we target, we try to push through Smart Post which moves actually the final mile in most cases through the postal service for final delivery. So the heavier weight traffic which is more in tune with our sweet spot and the home delivery network and the express network is actually not the traffic that they've targeted with their price decreases. So there are a lot of moving parts to that question but again the postal service plays an important role in our value proposition by providing that last mile delivery and you are seeing more consumers and etailers utilize Smart Post and direct injection models through the postal service because it facilitates free shipping, which is a key promotional tool. So we're seeing a lot of that in the ecommerce sector and we're benefiting from a lot of that.

Thank you. Our next question comes from Tom Wadewitz with UBS. Tom Wadewitz : Yes, good morning. So Alan, I appreciate your thoughts on fuel and providing some further explanation. I think there was another question on it as well. But I wondered if you could give us a number of comments on how you think if we stay at substantially lower fuel prices for a period of time for more than a quarter or two and also looking beyond the two month time lag impact, is there a benefit to profitability of Express from significantly lower fuel prices perhaps some slippage on fuel surcharge or other ways that it comes through the P&L because I think there is a sense that Express is fuel intensive and fuel sensitive, or is that just the wrong way to look at it and you don't really get a margin or an operating income benefit out a couple quarters from fuel prices which are pretty dramatically down?

Tom, thanks for the question. I'll start and let Mike add some more color. Everything else being equal lower fuel prices helps elasticity at Express by having a lower surcharge. And there is a trade up factor just as there's a trade down factor when prices are extremely high. But I did quantify that by saying everything else being equal because lower oil prices seem to be roiling some of the markets at the moment and people are still trying to figure out what it means particularly if you're in a oil business and what it means for capital expenditures for the oil and exploration companies and how that impacts the economy and everything else. So there's a big impact all around and of course we provide service for their machine parts and other things that they need to get on just in time basis to where they need to be. So there are so many things that impact this, it's hard to just nail that through the wall but maybe Mike can add to that.

Yes, Tom. When you get right down to it, the fuel surcharges at all of our operating companies are a pricing tool index to the price of fuel and of course we review those on a regular basis and make adjustments based upon market conditions. But if you take Express and Ground for example, the changes we're going to be making to the design are largely or at least in partly designed to reduce the volatility of the surcharges for our customers. It's also important to note that how customers view surcharges differs in the parcel segment versus the freight. In the parcel segments, customers tend to look at the fuel surcharge as part of the overall rate the customer pays and the freight segment, it's more put aside and the customer is more focused on the base rate and not as much on the fuel surcharge. So it really does differ by segment and of course as I mentioned what we try to do is to review these on an annual basis and make adjustments based upon market conditions.

Thank you. Our next question comes from Brandon Oglenski with Barclays. Brandon Oglenski : Well good morning, everyone. Alan, just a quick comment. Thank you again like Tom said for walking through the fuel surcharge. I think a few analysts might have gotten carried away with it here including this one. But longer term, Fred, the acquisition of Genco here, does this signal a strategic shift for the company? I mean are you guys going to be looking more at the non-asset part of the business here as you expand your portfolio as opposed to the acquisitions we've seen in the past at Express more internationally focused by smaller carriers in Europe and some of the emerging markets?

Well, Alan and I both have commented on our criteria for acquisitions and they are threefold. First, there has to be a compelling strategic rationale and that was certainly the case in Genco as I mentioned a few moments ago. We've identified for several years in our strategic management committee and at the board level the gaps in our portfolio that we would like to fill either on a build or buy basis. So if an acquisition comes on the horizon we are certainly interested in that and I would say that clearly, we like non-asset intensive parts of our portfolio because they tend to add to our overall returns on invested capital as well as broadening our portfolio and we are selling a portfolio. We've got some wonderful advertising at the moment that makes that point very clearly. So all things being equal, of course, we would rather have things that are non-asset intensive than things that are asset intensive. That's basically what most of Wall Street thinks about every day and to some degree, too much so in my opinion to the detriment of job creation and increased income for our citizens. The second criteria that we have is there a good fit in terms of the culture and the technologies, because most acquisitions founder on one of those two bases and then the third thing which my partner is sitting right beside me here feels very strongly about, you can't overpay. I mean why I go buy something which destroys shareholder value, so that's our criteria for investment. We certainly like non-asset intensive parts of our portfolio because they are complementary but it's basically those three criteria. Strategic fit, culture and technology makes sense as we said before that's the case at Genco in a very big way and third, the numbers have to make sense.

Thank you. Our next question comes from David Ross with Stifel Nicolaus. David Ross : Yes, good morning everyone. Maybe a question for Bill and Mike. Now that you've moved or are moving in the New Year to all dim weight or dimensional based pricing in ground; any thoughts on shipping to dim pricing in FedEx Freight and any barriers to that potential switch?

Hey David, it’s Bill. I will jump in first. Yes, we are rolling out right now some of the dimensional overhead machines to kind of take a good look at it. Again we look at it in kind of three ways; one, you can capture some instantaneous revenue and get accurate dims on existing shipments but also it's a very good tool for us to continue to improve pricing, knowledge of what’s actually moving to our systems, so that’s kind of where we’re going there. I think as far as dim technology, again we have -- we have opportunities to currently with some customers to use some dim pricing, but again long-term that is a key objective of ours to keep on moving both our business that way. And again I think as we try to become freight – FedEx becomes a significant part of our business we want to make sure that we’re also able to give customers the parcel side of the business the same type of deals that they deal with everyday on the parcel side. We’re working hard at it and Mike’s marketing team spends a lot of time kind of working this issue and leading it for us.

Just to add, the density-based pricing is something we already offer to select customers and we will continue to do so. We find it offers a more simplified alternative to the classification based system which is extremely complex and quite frankly out-dated. So I think it would benefit the industry as a whole to move to more simplified pricing structure and get away from the classification system. But obviously the market will dictate that.

Thank you. Our next question comes from Thomas Kim with Goldman Sachs. Thomas Kim : Good morning. Alan, can I ask you a question with regard to your FX sensitivities within Express and then also to what extent does lower fuel impact your purchase transport costs?

Well certainly purchase transportation is a high and growing part of our cost structure particularly around peak. So the lower fuel is the lower those costs are which is an indirect not to the fuel line but an indirect benefit to us. I think it's very important. What was your first question again? Thomas Kim : FX sensitivities, please?

Okay. Well remember that since we are not a big manufacturing company we can adjust our pricing very quickly based on dramatic changes in foreign exchange. We expect the dollar to strengthen as is everybody else and of course in areas where we are profitable, that will be a very good thing for us. But it's really got a very minimal impact to our overall P&L because the way that we’re able to manage the pricing side of the house which has been very beneficial to us.

Yes, this is Dave Bronczek. I just wanted to go back and make the point again on our expenses and our costs. Our aircraft maintenance costs were actually less in Q2 than they were in Q1.

Thank you. Our next question comes from Kevin Sterling with BB&T Capital Markets. Kevin Sterling : Thank you and good morning, Bill hope you enjoy retirement. Mr. Smith you'd touched on the West Coast port congestion. Maybe I can take it a little step further. How much of a negative impact, if it did have a negative impact on your NVOCC business within FedEx trade networks and maybe some of that freight that you see a shifting of some of that ocean freight possibly to the air side within FedEx trade networks?

Well, I think the reality is that the container lines and FedEx trade networks and the other NVOCCs as you mentioned found that the die was cast by the time it became clear that the port issues were going to be a big problem. If you followed the negotiations out there it was really only obvious in November that the slowdown was taking place. And I don't know the details of that but certainly, certain people in the shipping industry have said this work to rule activity in the ports is the cause of traffic taking a couple of weeks to get through the ports in what should have been two to three, four days. So that's a very big deal in terms of the inventory decisions that were made last spring and the shipping plans that were put in place last summer. So I don't think you should think about the fact that all of a sudden this slowdown happened and everything moved by air because what drives the movement of goods by air more than any other thing is the value per pound and there may be some closing samples that go air express or move by air but the vast majority of apparel is never going to move by air simply because the price point of the goods won't justify the much higher cost of moving by air. So a lot of people get that mixed up. It's only on the margins that surface to air makes sense. Now longer term as Alan said the elasticities are very important there because markets are logical. The biggest effect I think as I mentioned a moment ago on the peak season is that there are a lot of not in stock situations among all the retailers. We have a lot of expertise and within the company and even on our board of directors in this sector and I think you're going to hear this from a lot of the retailers when they report their results. So I hope that clarifies some of this thing. I don't want people to go away from this and think there's a systemic shift from sea to air because of a short-term issue here. That just won't happen.

Thank you. Our next question comes from Jeff Kauffman with Buckingham Research. Jeff Kauffman : Thank you very much and congratulations on the quarter. Bill, best of luck in retirement. Let me ask kind of a broader simpler question. Fuel is down and I think you've said a number of types that your view is that will be good for volume on the consumer side. Your economic outlook sounds a little bolder. You announced two pretty decent acquisitions here. Why is there no improvement in the forward outlook?

Jeff, this is Alan. Well, I think again there was probably a little over estimation about the benefit from fuel for us for the year, so we don't see that. We think it's still going to be slight so that's what's in the guidance but I haven't given you FY16 yet. So that's coming pretty soon. Jeff Kauffman : Okay and the acquisitions would take effect more in FY16 than FY15?

For sure.

Thank you. Our next question comes from David Vernon with Bernstein. David Vernon : Thanks for taking the question. Are you guys -- with the international market being a little stronger the last few months from the IATA data and also a little bit we're hearing sort of anecdotally on expediting, are you seeing sign that the capacity situation in the international air freight market is getting tighter that rates are getting better or are we seeing just a lot of the excess capacity that may have been put down to the ground come up limiting any positive impact on the rate environment?

David, this is Dave Bronczek. It's relatively flat still. I mean you still have a lot of extra capacity in the underbellies of a lot of the passenger airlines and so forth. So I would say that right at the moment to Fred’s earlier point because of the port issues we have seen some increases there on rates and on freight. But generally speaking it’s flat. End of Q&A

We have no further questions in queue. I would like to turn the conference back over to our presenters for any concluding or additional remarks.

Thank you for your participation in FedEx Corporation second quarter earnings release conference call. Feel free to call anyone on the investor relations team if you have additional questions about FedEx. Thank you very much. Happy holidays.

This does conclude today's conference. We thank you for your participation.