Mike Lenz
Executive Vice President and Chief Financial Officer at FedEx
Thank you, Brie and good afternoon, everyone. Our first quarter FY '22 adjusted earnings per share of $4.37 was negatively impacted by approximately $800 million in year-over-year headwind. And while Raj covered the operational impacts of these challenges, I will detail the financial impacts to the quarter. With these headwinds the difficult labor market have the largest effect on our bottom line, representing an estimated $450 million in additional year-over-year cost, the majority of which impacted our FedEx Ground business.
As we look into the impact of labor cost from the business, I want to break this impact into two components, higher wages and the impact of network inefficiencies. Of the $450 million we estimate that $200 million was incurred in higher wage and purchased transportation rates. This included higher wage rates and pay premiums for team members and higher rates paid for third-party transportation services.
In addition to the higher wage rates, we estimate that network inefficiencies of approximately $250 million contributed to the total impact of labor shortages on the business. These costs include additional linehaul, higher usage of third-party transportation, cost to reposition assets in the network, over time and recruiting incentives all to address staffing shortages. On the labor impacts, our results for the first quarter also included the following headwinds, an additional $135 million in healthcare costs due to lower utilization a year ago, $85 million related to investments in the Ground network, which represents the cost of bringing online 16 new automated facilities and expansions at 100 facilities, which are critical to improving service and adding capacity to meet growth for peak and beyond.
And at Express, we estimated $60 million in incremental air network costs due to the impact of COVID restrictions on our operations, including limitations on layover, supplemental crews to ensure service continuity and immigration restrictions. In addition and as a reminder, our prior year results at Express included a pre-tax benefit of our first quarter results did come in lower than our own expectations as difficult labor conditions persisted throughout the quarter. As a result of that variable compensation was not an expense headwind in the first quarter.
With that overview of the consolidated results, let's turn to the highlights for the segments. An Express results declined due to the higher operating expenses from staffing challenges and COVID-related air network impacts I discussed. Profitability was also impacted by fewer charter flights compared to the third last spring during the early months of the pandemic. While we've covered the impacts to Ground results in detail, I would like to call your attention to an enhancement in our reporting included in the release and the 10-Q. As a result of business growth and our unmatched seven-day operating network at Ground, we are now providing additional product level disclosures for average daily package volume. Beginning with our first quarter we are breaking out ADV statistics for FedEx Ground Commercial, Home Delivery and economy services. Turning to Freight, we reported a record operating margin of 17.3% for the quarter as our continued focus on revenue quality and profitable growth drove average daily shipments up 12% and revenue per shipment increased to 11% as Brie highlighted previously.
Now we pivot to capital spending. During the first quarter, we spent $1.6 billion in capital as we continue to invest in our strategies for profitable growth, service excellence and modernizing our digital and IT platforms. Our capital forecast for fiscal '22 remains at $7.2 billion and less than 8% of anticipated revenue includes the following key elements. First, more than 50% increase in capital spending at Ground year-over-year for capacity expansion and new facilities to capture opportunities from growing e-commerce business. And second, fleet modernization at Express with continued investment in 767 and 777 aircraft, which not only has a high financial return but it is an important part of the strategy to reduce our carbon footprint. In evaluating capital investments our return on invested capital on existing capital on new projects is a critical metric to managing our business and we have a rigorous approval process in place on all new capital projects.
As we look at investments, we set the internal rate of return hurdle above our weighted average cost of capital, which varies based on the nature of the project. For example, an investment in replacement capital will have a lower hurdle rate than growth capital. Capital returns has always been an important metric to managing the business both historically and in the future. We ended our quarter with $7 billion in cash and are targeting over $3 billion in an adjusted free cash flow for FY '22, which puts us on pace to deliver over $7.5 billion in adjusted free cash flow for FY '21 and '22 combined, far exceeding our historical levels. We continue to focus on thoughtful capital allocation and strengthening our balance sheet in fiscal 2022. During the quarter, we repurchased 1.9 million shares totaling roughly $550 million and are targeting approximately 1 million additional shares for the balance of the year. In addition, we plan to make a $500 million voluntary contribution to our pension plan this year. We are lowering our fiscal 2022 guidance to reflect our first quarter results, which were lower than our expectations.
As we look to the rest of the fiscal year, we expect certain factors to extend longer than we originally forecast in June. So for fiscal '22, we are now forecasting earnings per share of $18.25 to $19.50 before the mark-to-market retirement plan accounting adjustment and earnings per share of $19.75 to $21 before the mark-to-market adjustments and excluding estimated TNT integration expenses and costs associated with business realignment activities. And our effective tax rate projection is approximately 24% again prior to the mark-to-market retirement plan adjustments.
While our outlook reflects more uncertainty moving forward it represents adjusted year-over-year EPS growth ranging from approximately 9% to 15.5% following our record fiscal 2021. As you all know we are navigating an inherently uncertain macro environment and managing several unknowns, the pace, shape and timing of global economic recovery given the dynamics of the pandemic including the spread and response to new and existing COVID variants. The uneven nature of global government restrictions, disruptions to global supply chains and to improvement in labor availability, current fuel price expectations and existing tax regulations.
With respect to labor, we are assuming that the combination of these actions that we are taking that Raj outlined, combined with a steady increase in labor availability as we turn into calendar '22 will allow us to add team members which will drive improvement in our efficiency, productivity and cost structure. While we are not providing specific second quarter EPS guidance, I do want to highlight a few key assumptions within our outlook.
Overall for the second quarter, we anticipate a similar level of headwinds in Q2 as we experienced in the first quarter as the challenges and impacts to our operations from the labor shortages are expected to persist in the rest of calendar 2021. Consistent with the [Technical Issues] first quarter we also expect headwinds in Q2 to be driven by our expansion at Ground, higher healthcare expenses, COVID-related air network inefficiencies at Express and the benefit in the prior year of reduced aviation excise taxes. That said, while these headwinds will persist in the second quarter, we expect strong performance in the second half of fiscal '22. We remain confident in our long-term strategies will allow us to realize the benefits of growth investments in the future.
And next, we'll be happy to address your questions.
