John Dietrich
Executive Vice President and Chief Financial Officer at FedEx
Thanks, Brie. For fiscal year '24, we delivered $6.2 billion of adjusted operating profit, which is nearly a $900 million or 16% year-over-year improvement, adjusted operating margin expansion of 110 basis points, and adjusted EPS up 19%. This is a very strong result in a year where revenue was down 3% or nearly $2.5 billion. We also reduced our capital intensity and achieved our capex to revenue target of 6.5% or less a year ahead of schedule. And with the continued strong cash flow and lower capital intensity, we returned nearly $4 billion to stockholders.
These results reinforce that our transformation efforts are taking hold and demonstrate our commitment to creating value for our shareholders. Taking a closer look at our Q4 consolidated performance on a year-over-year basis, adjusted operating income increased by over $100 million, and adjusted operating margin expanded by 40 basis points. At Ground, the team delivered another strong quarter. Adjusted operating income increased by $133 million and adjusted operating margin expanded by 130 basis points. This was driven by continued progress on drive, increased yield, lower self-insurance costs, and commercial volume growth.
At Freight, operating income increased by $58 million and operating margin improved by 220 basis points, driven by higher yield. Freight's continued focus on revenue quality and cost management has enabled improved profitability despite the soft demand environment. As directionally expected, adjusted operating income at Express fell by $92 million in the quarter, and adjusted operating margin was down 90 basis points. Express results were pressured by lower international yield, higher purchase transportation costs due to the launch of our Tricolor initiative, and a headwind from annual incentive compensation. DRIVE cost reductions and higher U.S. domestic package yield partially offset these pressures.
With respect to Europe, earlier this month, we announced a planned reduction in the size of our European nonoperational staffing to further support Express profit improvement. We expect $125 million to $175 million in annualized benefits beginning in FY '27 with tailwinds starting later in FY '26. Decisions like these are never easy but are a necessary step to improve profitability in the region. In addition to our segment results, our fourth quarter results include a noncash impairment charge of $157 million relating to our decision to permanently retire 22 Boeing 757 aircraft from our U.S. domestic network along with seven related engines. These actions, coupled with the previously announced retirement of nine MD-11s in the quarter, resulted in the permanent removal of 31 jet aircraft from our fleet in FY '24. This reflects our strategy to continue to right size our air network capacity with demand and to unlock additional operating efficiencies.
Now turning to our outlook for fiscal year '25. Our adjusted earnings outlook range for the year is $20 to $22 per share. Let me talk through our key assumptions and variables. Starting with revenue, we expect low to mid-single-digit growth, driven by improving trends in U.S. domestic parcel and international export demand. The primary factors that will ultimately determine our revenue growth are: the rate of yield expansion, the pace of global industrial production, and growth of domestic e-commerce. We expect FY '25 yields to benefit from both improved base rates and increased fuel surcharges. And consistent with what we have seen over the past year, we're anticipating a pricing environment that is competitive but rational.
On the expense side, we remain committed to aggressively managing our cost structure, including the incremental $2.2 billion benefit tied to DRIVE. I'll walk you through the puts and takes in our FY '25 operating profit bridge in a moment, but at the business level, in fiscal year '25, we expect the newly combined Express, Ground, and Services segment, now called Federal Express, to be the larger driver of FY '25 adjusted income and margin improvement. And we expect FedEx Freight margins to be up modestly year-over-year due to both yield and volume growth.
I'd also like to provide some color on our quarterly cadence in light of the U.S. Postal Service contract expiration at the end of September. We anticipate headwinds from the expiration of that contract to begin in the second quarter starting in October, with this headwind lessening in the second half as we aggressively reduce our Postal Service-related costs, including our U.S. domestic air network costs. Turning to other aspects of our outlook. Our estimated effective tax rate for the full year is approximately 24.5% prior to mark-to-market retirement plan adjustments. We're also forecasting $560 million of business optimization costs in FY '25 associated with our transformation. Our operating income bridge shows the operating profit elements embedded in our full year outlook. By way of illustration, we're using adjusted operating profit of $7.2 billion, equivalent to $21 of adjusted EPS, the midpoint of our outlook range.
To get to $7.2 billion of adjusted operating profit, we're now assuming revenue, net of variable costs and continued inflationary pressures, is up $100 million, U.S. Postal Service contract termination results in a $500 million headwind, international export yield pressure of $400 million as demand surcharges diminish and mix continues shifting toward our deferred services, and two fewer operating days in the year decreases profitability by $300 million. And as a side note, we have not experienced this adverse calendar dynamic since fiscal year 2001.
And lastly, performance-based variable compensation increases by $100 million. DRIVE, however, will more than offset these pressures, delivering an incremental $2.2 billion in structural cost savings. As a result of all of these factors and at the midpoint, we would expect fiscal year 2025 adjusted operating income to increase by approximately 15% year-over-year. In FY '24, we remained focused on reducing our capital intensity, increasing ROIC, and continuing to provide increased stockholder returns all while maintaining a strong balance sheet.
Capital expenditures for the quarter were $1.2 billion, bringing year-to-date capex to $5.2 billion, which is a decline of nearly $1 billion compared to last year. We delivered ROIC of 9.9%, which is an increase of 120 basis points from last year's 8.7%. And we'll continue to focus on improving ROIC and it is now a significant element of our long-term incentive program. Consistent with our goal of increasing stockholder returns, we completed $500 million of accelerated share repurchases in the fourth quarter, bringing our total share repurchases for the fiscal year to $2.5 billion. This is $500 million above our plan that we came into the year with. For the full year, we also generated $4.1 billion in adjusted free cash flow, which is up about $500 million year-over-year.
Looking ahead to FY '25, we anticipate capital spend of $5.2 billion, which will again be down year-over-year as a percentage of revenue. And we'll work by prioritizing our capital toward optimizing our network as part of Network 2.0 and further enhancing our fleet and automation to improve operating efficiency. And we remain committed to decreasing aircraft capex to approximately $1 billion in FY '26.
Due to improved earnings and capex discipline, we expect to further grow adjusted free cash flow. This will enable us to deploy $2.5 billion in stock repurchases in FY '25, including a planned $1 billion of repurchases in Q1. As previously announced, we are also enhancing our stockholder returns by increasing our dividend by 10%, and this is on top of the 10% increase we implemented in FY '24. Lastly, we're planning for $800 million of voluntary pension contributions to our U.S. qualified plans, and these plans continue to be well funded and were at the 98.6% funding level at fiscal year-end.
Finally, a quick update on our segment reporting changes. Now that we have successfully completed the consolidation of Express, Ground, and Services into Federal Express Corporation, I'm pleased to announce that our reportable segments in FY '25 will be Federal Express and FedEx Freight with no changes to corporate and other. FedEx Freight will include FedEx Custom Critical, which was previously included in FedEx Express. We're making this change to Freight due to the business synergies between Custom Critical and Freight.
Our new segment structure reflects our commitment to operating a fully integrated air and ground express network. And let me be clear, notwithstanding the consolidation of Express and Ground, optimizing our Express services and associated costs, including the cost of our global air network remains critical to our profit and return objectives. This consolidated structure will support One FedEx and Network 2.0 objectives and will provide a more flexible, efficient, and intelligent network as One FedEx. We'll continue to provide service level volume and yield detail, and we plan to share a revised statistical book in late August, which will include our recast results for FY '23 and FY '24.
Overall, I want to acknowledge and thank the entire team for their efforts in delivering these strong FY '24 results and improving profitability despite a very challenging demand environment. I'm also really inspired by their commitment to achieving even stronger results in FY '25 and beyond as we continue to deliver on the Purple Promise. With that, let's open it up for questions.
