MEMPHIS, Tenn., December 20, 2006 - (See overall results below) FedEx Kinko’s Segment For the second quarter, the FedEx Kinko’s segment reported: - Revenue of $519 million, down 2% from last year’s $528 million - Operating income of $8 million, down 50% from $16 million a year ago - Operating margin of 1.5%, down from 3.0% the previous year FedEx Kinko’s revenues decreased year over year primarily due to lower copy product revenues attributed to decreased demand. The operating margin decline was primarily due to the base revenue decline, network expansion costs, employee development and training costs, and sales workforce reorganization expenses. FedEx Kinko’s continues a company-wide effort to refocus resources on core business priorities, including a multi-year network expansion using a lower-cost model. The company opened 86 centers in the first half of the fiscal year with plans for a total of approximately 200 new locations by the end of FY07. OVERALL - FedEx Corporation today reported earnings of $1.64 per diluted share for the second quarter ended November 30, compared to $1.53 per diluted share a year ago. The quarter’s results included costs associated with the new pilot labor contract at FedEx Express. The net effect of this agreement reduced second quarter earnings by approximately $0.25 per diluted share. Excluding these costs, second quarter earnings were $1.89 per diluted share, an increase of 24% from last year’s second quarter. FedEx Corp. reported the following consolidated results for the second quarter: • Revenue of $8.93 billion, up 10% from $8.09 billion the previous year • Operating income of $839 million, up 6% from $790 million a year ago • Operating margin of 9.4%, down from last year’s 9.8% • Net income of $511 million, up 8% from $471 million the previous year Total combined average daily package volume at FedEx Express and FedEx Ground grew 7% year over year for the quarter, led by ground and international express package growth. "FedEx continues to deliver outstanding financial results, and I am confident about our business going forward," said Frederick W. Smith, chairman, president and chief executive officer of FedEx Corp. "Package volumes are solid this holiday season, and we see continued global economic growth in 2007.” The company has announced a net 3.5% average price increase on U.S. domestic and U.S. export express shipments, and a 4.9% average price increase on FedEx Ground services. These changes will be effective January 1, 2007. The company also announced increases to various shipment surcharges. Outlook With the better-than-expected second quarter results and an expected strong fourth quarter, management is tightening its annual earnings guidance range to $6.35 to $6.65 per diluted share. Excluding the net impact of the second quarter costs associated with the new pilot labor contract, the updated guidance is $6.60 to $6.90 per diluted share. For the third quarter, earnings are expected to be $1.20 to $1.35 per diluted share. For the fourth quarter, earnings are expected to be $1.98 to $2.13 per diluted share. The capital spending forecast for fiscal 2007 is $3.1 billion. “Earnings for our second quarter were better than forecast primarily due to lower than expected fuel prices, slightly stronger than anticipated growth at FedEx Ground and insurance proceeds related to Hurricane Katrina,” said Alan B. Graf, Jr., executive vice president and chief financial officer. “Our earnings guidance for the third quarter recognizes a difficult year-over-year comparison, as last year’s third quarter benefited from the timing lag that exists between when we purchase fuel and when our indexed fuel surcharges automatically adjust. December 2005 fuel surcharges at FedEx Express and FedEx Ground were set during the period fuel prices had spiked following Hurricane Katrina. We remain optimistic that we will continue to improve full-year margins and returns during a period of moderate economic growth.” FedEx Express Segment For the second quarter, the FedEx Express segment reported: • Revenue of $5.69 billion, up 6% from last year’s $5.37 billion • Operating income of $502 million, up 5% from $476 million a year ago • Operating margin of 8.8%, down from 8.9% the previous year Operating margin was negatively affected by costs associated with the new pilot labor contract. The new contract includes signing bonuses and other upfront compensation of approximately $143 million, as well as pay increases and other benefit enhancements, which were partially mitigated by reductions in variable incentive compensation. These costs more than offset the benefit from revenue growth, declining fuel prices and revenue management actions. FedEx International Priority (IP) revenue grew 12% for the quarter, as IP revenue per package grew 6%, primarily due to favorable exchange rates, a higher rate per pound and an increase in package weight. IP average daily package volume grew 6%. U.S. domestic revenue per package increased 3%, driven by a higher rate per pound, while package volume declined 1%. FedEx Express continues to grow and strengthen its international network. The company recently acquired ANC Holdings Ltd., a United Kingdom domestic express transportation company, and entered into an agreement to acquire Prakash Air Freight Pvt. Ltd., its Indian express service provider. These strategic investments will expand the company’s offering to customers and deliver additional value to shareowners. FedEx Ground Segment For the second quarter, the FedEx Ground segment reported: • Revenue of $1.52 billion, up 16% from last year’s $1.31 billion • Operating income of $191 million, up 17% from $163 million a year ago • Operating margin of 12.6%, up from 12.5% the previous year FedEx Ground average daily package volume grew 14% year over year in the second quarter due to increased commercial business and the continued growth in the FedEx Home Delivery service. Yield improved 2% primarily due to a higher rate per pound, higher fuel surcharges and increased extra service revenues. Operating margin was higher due to revenue growth, improved operating results at FedEx SmartPost and lower fuel costs, which more than offset increased network expansion and legal costs. FedEx Freight Segment For the second quarter, the FedEx Freight segment reported: • Revenue of $1.23 billion, up 31% from last year’s $932 million • Operating income of $138 million, up 2% from $135 million a year ago • Operating margin of 11.3%, down from 14.5% the previous year On September 3, FedEx completed the purchase of Watkins Motor Lines. The operations of Watkins Motor Lines are being rebranded as FedEx National LTL. Operating margin declined during the quarter, as the impact of FedEx National LTL, including integration costs, more than offset the benefit from a property sale gain. Less-than-truckload (LTL) shipments increased 28% year over year primarily due to the FedEx National LTL acquisition and demand for FedEx Freight’s regional and interregional services. Average daily LTL shipments at FedEx Freight, excluding FedEx National LTL, continued to grow in the second quarter, although growth moderated each month during the quarter. LTL yield improved 11% year over year reflecting higher yields from longer-haul FedEx National LTL shipments and higher rates.