Can you discuss the magnitude of investments and separation costs for the LTL business in Q3 and Q4, and provide a 12-month outlook for the volume environment?

Marshall Witt explained that Q3 volume and revenue declines reflect the broader LTL industry. Increased separation costs in Q3 and Q4 are primarily for building IT infrastructure and talent for the spin-off. He noted these are 'good cost incurrences' for future stand-alone operations. A more detailed 12-month outlook will be provided at the FedEx Freight Investor Day. “We look at those as good cost incurrences primarily because they're related to building out our IT infrastructure, which we will need as part of our spin, which is projected to be on 6/1 and also building out our talent, and that represents both folks that are coming on board externally and folks that are transitioning over from FedEx Corporation.”

Given the strong Q3, why is the sequential step-up to Q4 less, and what are the Q4 headwinds? Also, is FY27 EPS growth expected with Network 2.0 ramping?

Raj Subramaniam explained that Q3's exceptional profitability, driven by improved forecasting, commercial strategies, and Network 2.0 efficiencies, has structurally altered traditional seasonality. Q4 headwinds include a $500 million year-over-year impact, with $275 million from variable compensation, $135 million from LTL business, and $50 million from MD-11s. He did not provide specific FY27 EPS guidance but highlighted ongoing momentum. “The reason I bring this out here today is that these are permanent changes in how we operate and really making a structural shift how we think about peak profitability. And consequently, the traditional seasonalities of our business is now fundamentally altered as our Q3 strength becomes a new standard.”

FedEx is seeing domestic volume and yield growth, and international volumes turning positive, which is unique in the freight world. How sustainable is this, and should we expect difficult revenue comparisons next year?

Brie Carere attributed the performance to a multi-year focus on B2B and B2C discipline, leading to profitable market share gains. She acknowledged Q3 was an 'anomaly in the market' but expects trends to continue in Q4. While there will be a tough comparison for domestic priority volume due to large healthcare customer onboarding, the company's FY27 goal remains 4% revenue growth, emphasizing disciplined revenue quality. “We do acknowledge that this is an anomaly in the market. We have taken profitable market share for 11 consecutive quarters in Europe. Here in the United States, this is the strongest profitable market share growth we have seen in more than 20 years. So it was a remarkable quarter.”

FDX

FedEx (FDX) Q3 FY26 earnings call: guidance and Q&A

Earnings call· Feb 2026 (Q3 FY26)· Industrials· Mar 19, 2026

Source: earnings call transcript

Executive summary

FedEx Corporation Q3 FY26 — Strong FEC Performance Drives Raised FY26 Outlook

FedEx delivered a strong third quarter, primarily driven by robust performance in its Federal Express Corporation (FEC) segment, which saw significant revenue and margin expansion. The company raised its full-year adjusted EPS guidance, reflecting sustained positive trends at FEC and disciplined capital allocation. Despite ongoing softness in the LTL market and costs associated with the FedEx Freight spin-off, management remains focused on strategic priorities like Network 2.0 and high-margin vertical growth, aiming for long-term value creation.

Highlights

Consolidated revenue increased 8% year-over-year, driven by yield and volume strength across package services.
Adjusted operating income increased 7% year-over-year, with adjusted EPS growing 16%.
Federal Express Corporation (FEC) grew revenue 10% and expanded adjusted operating margin by 50 basis points, marking its sixth consecutive quarter of margin expansion.
FY26 adjusted diluted EPS forecast raised to $19.30-$20.10, up from $17.80-$19.00.
Network 2.0 on track to have 65% of eligible volume flowing through optimized facilities by next peak, with $2 billion in cumulative savings expected by end of 2027.

Concerns

FedEx Freight revenue declined 5% due to lower shipments and continued LTL industry demand weakness.
FedEx Freight adjusted operating income declined $127 million year-over-year, impacted by market softness and approximately $60 million in separation-related costs.
MD-11 fleet grounding led to a $120 million headwind in adjusted operating income for Q3, with an expected additional headwind of up to $55 million in Q4.
Variable incentive compensation is expected to be an $800 million headwind for the full year FY26.
Q4 outlook includes an approximate $0.10 sequential and year-over-year headwind from higher share count and interest costs due to FedEx Freight's debt issuance.

Guidance & targets

Category	Target	Timeline	Confidence
FY26 Adjusted Diluted EPS	$19.30 to $20.10 high materiality	FY26	High
Q4 Adjusted EPS	approximately $5.80 medium materiality	Q4 · FY26	Medium
FY26 Consolidated Revenue Growth	6% to 6.5% high materiality	FY26	High
Q4 Consolidated Revenue Growth	6% to 7.5% medium materiality	Q4 · FY26	Medium
FY26 FEC Revenue Growth	approximately 8% medium materiality	FY26	High
Q4 FEC Revenue Growth	approximately 8% medium materiality	Q4 · FY26	Medium
FY26 FedEx Freight Revenue Growth	down low single digits medium materiality	FY26	Medium
Q4 FedEx Freight Revenue Growth	flat to down slightly medium materiality	Q4 · FY26	Medium
FY26 CapEx	no more than $4.1 billion high materiality	FY26	High
Aircraft CapEx	$1 billion or below medium materiality	FY26 through 2029	High
FY26 Adjusted Free Cash Flow	further upside high materiality	FY26	Medium
Adjusted Free Cash Flow Target	$6 billion high materiality	2029	High
2029 Adjusted EPS Target	$25 high materiality	2029	High
FY26 FEC Volume-Related Revenue Net of Variable Costs	$600 million tailwind medium materiality	FY26	High
FY26 FEC Yield	$3.2 billion tailwind medium materiality	FY26	High
FY26 Base Expense Increase	$1.6 billion medium materiality	FY26	High
FY26 FedEx Freight Adjusted Operating Income Decline	$400 million medium materiality	FY26	High
FY26 Variable Incentive Compensation Headwind	$800 million medium materiality	FY26	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Consolidated Consolidated revenue was up 8% year-over-year, driven by yield and volume strength across nearly all package services. Adjusted operating income increased 7% year-over-year.	$22.1B	8%	—	—
Federal Express Corporation (FEC) FEC grew revenue 10% and expanded adjusted operating margin by 50 basis points, marking its sixth consecutive quarter of margin expansion. This led to an 18% growth in adjusted operating income. Adjusted Operating Income Growth: 18%	—	10%	—	50 bps margin expansion
FedEx Freight FedEx Freight revenue declined 5%, pressured by lower shipments (down 6%) and ongoing LTL industry trends. Adjusted operating income declined $127 million year-over-year due to market softness and separation-related expenses. Revenue per shipment increased 1%. Shipments Decline: 6%Revenue per Shipment Increase: 1%	—	-5%	—	-$127 million adjusted operating income
FEC U.S. Domestic Package U.S. domestic package revenue grew 10%, marking the highest quarterly U.S. domestic revenue since FY22. Average daily U.S. domestic volume grew 5%, with U.S. domestic package yield increasing 5%. Average Daily U.S. Domestic Volume Growth: 5%U.S. Domestic Package Yield Increase: 5%	—	10%	—	—
FEC International Export Package International export package revenue grew a strong 8%, with Europe and Asia-to-Europe lanes being key drivers. International export volumes inflected positively for the first time in FY26, up 2% year-over-year, and yield grew 6%. International Export Volume Growth: 2%International Export Package Yield Growth: 6%	—	8%	—	—
FEC International Priority and Economy Freight International priority and economy freight revenue grew 14%, supported by the Tricolor strategy.	—	14%	—	—

FDX operating KPIs by quarter

FDX operating KPIs stated on its earnings calls, by fiscal quarter
KPI	Aug 2025 Q1 FY26	Nov 2025 Q2 FY26	Change vs prior quarter
Facilities Network 2.0	~140 We have close to about 140 facilities and integrated 360 stations in the process. Source: earnings call transcript	355 We now have about 24% of our eligible average daily volume flowing through 355 Network 2.0 optimized facilities. Source: earnings call transcript	—

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Product announcements

Product	Type	Timeline
Dun & Bradstreet and FedEx Dataworks Retail Momentum Index	launch	Spring 2026
Scoop robotic package unloader	launch	later calendar year 2026
FedEx Returns+	launch	U.S. launch, Europe in April

Deals & partnerships

InPost acquisition

FedEx announced participation in a consortium making an offer for all shares of InPost, a European out-of-home delivery segment company. The transaction is expected to close in the second half of calendar year 2026. FedEx and InPost will not integrate operations and will remain competitors.

Dun & Bradstreet strategic collaboration

Collaboration to launch the Dun & Bradstreet and FedEx Dataworks Retail Momentum Index, an early warning system for U.S. retail supply and demand. This marks the start of growing collaboration to develop additional joint insights for the market.

Berkshire Grey collaboration

Collaboration for the implementation of the Scoop robotic package unloader, an autonomous robotic system. Currently in pilot phase and expected to be further deployed later this calendar year.

Dexterity collaboration

Collaboration providing robots for trailer loading. Currently in pilot phase and expected to be further deployed later this calendar year.

Capital programs

Network 2.0 and One FedEx initiatives underway $2 billion

Benefit:cumulative savings

Expected cumulative savings from Network 2.0 and associated One FedEx initiatives. Approximately 35% of eligible volume flows through optimized facilities by end of March, targeting 65% by next peak.

Risks & headwinds

LTL industry demand weakness Q3 FY26, Q4 FY26, FY26

FedEx Freight revenue declined 5% YoY in Q3; FY26 revenue expected down low single digits YoY; Q4 revenue flat to down slightly.

Mitigation:Prioritizing revenue quality, sequential increases in revenue per shipment, dedicated LTL sales force hiring complete, focus on customer experience and disciplined pricing.

FedEx Freight separation-related expenses Q3 FY26, Q4 FY26

Approximately $60 million in Q3 FY26 (unadjusted); expected to continue in Q4 FY26.

Mitigation:Costs are for building IT infrastructure and talent for the spin-off, viewed as necessary for long-term stockholder value creation.

MD-11 fleet grounding Q3 FY26, Q4 FY26

$120 million adjusted operating income headwind in Q3 FY26; up to $55 million additional YoY headwind in Q4 FY26.

Mitigation:Network adjustments and operational mitigation by pilots, network planning, and flight operations teams; aircraft planned to begin returning to service late in Q4.

Global trade policy changes Ongoing

Continued revenue and profit headwinds (offset by transformation-related savings). Transpacific outbound Purple-tail capacity reduced by ~15%, White-tail by ~25%.

Mitigation:Flexing air network, reallocating capacity to Asia-Europe and intra-Asia lanes, transformation-related savings.

Higher variable incentive compensation FY26

$800 million headwind for FY26.

Mitigation:Reflects commitment to rewarding employees for strong performance.

Higher share count and interest costs Q4 FY26

Approximate $0.10 sequential and year-over-year headwind in Q4 FY26.

Mitigation:Result of no incremental share repurchases in Q4 and higher interest costs from FedEx Freight's debt issuance. Share repurchases planned beyond FY26 to offset dilution.

Middle East conflict Q4 FY26

Modest headwind tied to business impact in the region.

Mitigation:Closely monitoring the situation, implemented contingencies, operating in alignment with local authorities, network adjustments to move traffic around conflict zones.

Q&A highlights

How is FedEx adjusting its network due to the Iran conflict, and what is the potential profit headwind for Q4?

Raj Subramaniam stated that the team has done a remarkable job managing the network and moving traffic around the conflict zone. The Middle East is a relatively small part of total revenue, and the outlook assumes a modest headwind. Fuel is part of their pricing strategy, and the net fuel impact for FEC in Q4 is expected to be muted.

“The Middle East itself is a relatively small part of our total revenue. And so we'll obviously monitor these trends as we go forward. I'll just add on to this. I know there's a comment maybe people are thinking about fuel as well. I would just say that fuel is part of our pricing strategy and our net fuel impact, especially at FEC is expected to be relatively muted for FEC for the fourth quarter.”

asked by Ariel Rosa · answered by Rajesh Subramaniam

3 min read 6 chapters

Detailed narrative

Strong Q3 Performance and FY26 Outlook Raise

FedEx reported strong Q3 FY26 results, with consolidated revenue up 8% year-over-year and adjusted operating income increasing 7%. This performance was largely driven by Federal Express Corporation (FEC), which saw 10% revenue growth and a 50 basis point expansion in adjusted operating margin, marking its sixth consecutive quarter of margin expansion.

Consequently, the company raised its FY26 adjusted diluted EPS forecast to $19.30-$20.10, up from the prior range of $17.80-$19.00, reflecting sustained positive trends at FEC and disciplined capital allocation.

Network 2.0 and Operational Efficiency

The transformation to one integrated intelligent network is progressing, with approximately 35% of eligible volume flowing through nearly 400 Network 2.0 optimized facilities by the end of March. The company remains on track to achieve 65% eligible volume flow by the next peak season and expects $2 billion in cumulative savings from Network 2.0 and associated One FedEx initiatives by the end of 2027.

Early wins from Network 2.0 and new technology tools, such as the unload trailer prioritization tool, contributed to an exceptionally profitable peak season, which management views as a structural shift in peak profitability.

Strategic Focus on High-Margin Verticals and B2B Growth

FedEx's commercial strategy to move up the value chain is yielding results, with nearly half of Q3 revenue growth driven by B2B services. This focus on high-margin verticals, including healthcare, has been a key enabler of increased profitability. The company is enhancing its offerings in pharma and expanding its sales team's focus on ground commercial products, including automotive and data center verticals, to capture further B2B opportunities.

International export volumes also inflected positively, up 2% year-over-year, driven by targeted capacity reallocation to Asia-Europe and intra-Asia lanes.

FedEx Freight Performance and Spin-off Progress

FedEx Freight's revenue declined 5% in Q3, pressured by lower shipments and ongoing LTL industry demand weakness. Adjusted operating income for the segment decreased by $127 million year-over-year, including approximately $60 million in separation-related costs for the planned spin-off. Despite these headwinds, FedEx Freight is prioritizing revenue quality, with sequential increases in revenue per shipment and contractual price increases.

The planned June 1, 2026 spin-off remains on track, with FedEx Freight successfully completing a $3.7 billion debt offering in January.

Digital Intelligence and Physical AI Initiatives

FedEx is leveraging digital intelligence and physical AI to enhance operations and create new services. The company introduced the unload trailer prioritization tool, using real-time data for yard operations. A strategic collaboration with Dun & Bradstreet will launch the Retail Momentum Index, an early warning system for U.S. retail supply and demand, starting this spring.

Additionally, FedEx is piloting autonomous robotic systems from Berkshire Grey (Scoop robotic package unloader) and Dexterity (trailer loading robots), with further deployment expected later this calendar year, aiming to improve safety and efficiency.

International Network Adjustments and European Transformation

In response to global trade policy changes, FedEx reduced transpacific outbound Purple and White-tail capacity by approximately 15% and 25%, respectively. Capacity was reallocated to Asia to Europe and intra-Asia lanes, which are driving strong revenue growth. The company is also transforming its ground operations in France, optimizing its hub-and-spoke network with fewer, better-placed hubs and reducing its station count by over 40%.

FedEx also announced participation in a consortium to make an offer for InPost, a European out-of-home delivery company, expecting the transaction to be accretive to earnings in year one after close.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.