Rajesh Subramaniam
President and Chief Executive Officer of FedEx Corporation at FedEx
Good afternoon, everyone. Before I start my remarks, I first want to acknowledge the upcoming retirement of Mike and his terrific contributions and accomplishments at FedEx over the last 18 years. Mike was named CFO in March of 2020, and I'm grateful for his leadership over the three years since then as we navigated a global pandemic and significant change. Due to his tireless work, FedEx is on solid footing as we execute the next phase of our strategy. Above all, Mike has been a good friend and a colleague of mine, and I wish him all the very best.
Now let me turn to my remarks for the quarter. Thanks to the hard work of the FedEx team, we have demonstrated continued progress on our journey to transform into the world's most flexible, efficient, and intelligent network. In the fourth quarter, we introduced and began preparing for one FedEx. At the same time, we continued to bend the cost curve through our DRIVE initiatives. This supported our fiscal year 2023 earnings, which came in above the midpoint of our March outlook despite continued soft demand and an unplanned year-end tax expense, which negatively impacted our earnings by $0.18 for the quarter. Our operating performance remains solid. We're entering fiscal 2024 with a continued focus on areas within our control, and a commitment to execute swiftly on our priorities. This focus will support sustained profit improvement in FY '24 through an environment that we expect to remain marked by demand challenges, particularly in the first half.
Turning to slide 6. I will start with a snapshot of the quarter. Total revenue in the fourth quarter was down 10% year-over-year as volumes declined with demand remaining soft across the market. With this said, the rate of volume decline in Ground and Express improved sequentially. As expected, yield trends have been pressured in international markets where the supply-demand balances have changed. We continue to maintain our focus on revenue quality and are committed to our disciplined pricing approach focused on the long term. While we expect these pressures to persist, we do expect moderation throughout the fiscal year.
With our execution on a number of cost actions, we delivered adjusted operating profit of $1.8 billion. Our fourth quarter performance enabled us to close out the year with an adjusted operating margin of 6% and adjusted earnings per share of $14.96. While our revenue declines were in line with the industry, I'm pleased to note that our flowthrough performance continues to improve, and we believe is the best in the industry in the first quarter of the calendar year. Beyond the headline numbers, our results this quarter embed continued progress on our transformation. I'm pleased to see our cost-out efforts take hold, but I'm also equally excited about the operational improvements we are driving as we build the smartest logistics network in the world.
For example, our market-leading Picture Proof of Delivery is now available to 90% of global residential deliveries, having launched in Europe earlier this month. Picture Proof of Delivery gives our customers visibility to their delivered shipments at the click of a button, and it has led to a 14% reduction in disputed delivery cases and contributed to a 17% reduction in call volume in the United States. Our four-hour estimated delivery time window, which we have rolled out to 47 countries is also improving the customer experience.
And at Ground, our dock modernization efforts are enhancing productivity, helping us run our docks smarter with new technology and key data insights. This includes a new network operating plan that uses machine learning to develop more detailed and accurate volume forecast. Ground remained a standout in this quarter as the team delivered operating income of over $1 billion. For the first time in company history, the Ground team expanded margins despite lower volumes in the second half. This is a clear indication our DRIVE transformation is working and gives us confidence as we push forward. And amid continued volume pressure, cost per package this quarter increased only 1.9%. This was supported by a total reduction in operating expenses of $350 million as the company continued to manage staffing levels effectively. We benefited from store closures and consolidations and reduced Sunday operations. These actions helped bring Ground's fourth quarter operating margin to 12.1%.
At Express, we have made significant progress aligning costs with underlying demand. Our initiatives continue to ramp, and we expect accelerating benefits in the upcoming fiscal year. Demand dynamics, combined with yield pressure, drove a 13% decline in revenue at Express. This performance was generally in line with our expectations coming into the quarter. In the face of these headwinds, the Express team was able to accelerate cost and productivity efforts driven by a combination of structural and volume-related initiatives. The Express team reduced total flight hours by 12% year over year and permanently retired 18 aircraft, including 12 MD-11s this quarter. The team is also planning to take another 29 aircraft out of scheduled flying in fiscal '2024.
In addition, we made excellent progress implementing structural cost savings initiatives beyond flights, including certain domestic efficiency initiatives. This includes the shift to a single daily dispatch of couriers, which achieved its target of $50 million in the fourth quarter savings, as well as accelerated hub productivity measures. In Europe, we continued to improve operational execution across the region. Notably, we announced the official opening of two of our hubs this quarter. In April, we reopened our international road hub in Duiven, Netherlands, and this month we opened our new state-of-the-art road hub in Novara, Italy. These two facilities have enhanced our capabilities, enabled more efficient routing, and improved our service on the continent. In aggregate, total operating expenses at Express were down $1.1 billion in the quarter. The magnitude of the operating margin decline has continued to narrow sequentially as our initiatives take hold.
At Freight, the team has focused on maintaining pricing discipline while flexing costs to protect profitability. The freight team was able to reduce operating expenses by over $330 million in the fourth quarter. This will be further supported by our announced plan to close and consolidate 29 locations, which will be completed by August. Consolidation will improve service levels while lowering our cost to serve. Further, we have conducted another round of furloughs to match staffing with volume levels and are limiting hiring of salaried employees.
Turning to slide 7. We continue to make significant progress in taking costs out of our network, delivering a $2 billion year-over-year reduction in operating costs in the fourth quarter of FY '23. This included more effectively matching flying with demand, marking the first quarter this year where our flight hours declined more than the underlying volumes. Additionally, we continued to aggressively manage headcount, including attrition, to align our teams with the network changes underway. We exceeded our target with U.S. headcount down by about 29,000 in FY '23. Also included in these cost reductions are ramping benefits from the numerous initiatives we have identified across the 14 DRIVE domains. Given our progress, we are confident that we can deliver on our previous goal for about $1.8 billion in cost reduction benefits from DRIVE this fiscal year and $4 billion of permanent cost reductions in fiscal year 2025.
As we introduced in April, between now and June of 2024, we will be consolidating our operating companies into one unified organization. One FedEx is the next step of this journey to realize our full value potential. It aligns our organization to one corporate structure that will facilitate the execution of our DRIVE transformation and will further enable the work that's underway in Network 2.0. Our work towards this goal is already taking shape. We have taken a significant step forward in the implementation of Network 2.0 with today's announcement of the transformation of our Canadian operations. In April of 2024, we will begin to transition, all FedEx Ground operations and personnel in Canada to FedEx Express, creating a truly integrated and unified Canadian network. This unification is enabled by the nature of the Canadian market where the population is heavily concentrated in a few key geographies currently serviced by both OpCos. Consolidation will create significant efficiencies throughout the business from first to last mile and across our support teams. We expect this change in Canada to generate an annualized benefit of over $100 million upon completion in FY '25. We've announced transitions in 20 markets and Canada marks the first large-scale implementation of Network 2.0, which builds off the learnings from our completed transitions in other geographies. To be clear, we are not taking a one-size-fits-all approach to our Network 2.0 strategy. Success depends on a mix of models, including employees, and contracting with service providers as all our important pieces of how FedEx moves packages.
Looking ahead to FY '24. We're entering the year with a clear focus on what is within our control in an underlying environment that remains dynamic across geographies. This backdrop is likely to pressure revenue growth, particularly in the near term. As a result, we are taking a prudent approach to our full year outlook that builds upon our solid finish to FY '23. We also made progress on reducing capital intensity by continuing to focus on the highest return opportunities in an efficient manner. After FY '25, we have no additional firm commitments on jet aircraft capex. As such, we expect our aircraft-related capex to decrease after FY '24 and be approximately $1 billion in FY '26. This capital allocation strategy represents our approach to a more efficient and nimble network. We will continue to look for additional opportunities as we proceed with our aircraft modernization strategy. We'll bring this discipline, along with our improved flexibility and agility to ensure that we are successful given the uncertain external environment.
In closing, I'm confident that the progress we are making on our transformation will translate into improved margins, returns, and cash flow throughout the year. At the same time, our commitment to driving operational improvement will further enhance the customer experience. Now let me turn it over to our Chief Customer Officer, Brie Carere who will discuss market trends and our commercial strategy in more detail.