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    FDX
    Earnings call· Aug 2025(Q1 FY26)

    FEDEX CORP FDX

    Sep 18, 2025 Source

    Executive summary

    FedEx Q1 FY26 — Solid Performance Amidst Global Trade Headwinds

    FedEx delivered a solid first quarter, meeting its outlook despite significant global trade volatility and industrial economic weakness. The company demonstrated resilience through its Tricolor strategy and Network 2.0 rollout, achieving strong revenue growth and operating income expansion, particularly in its Express segment. Management is focused on strategic growth in high-value verticals and cost reduction, while preparing for the FedEx Freight spin-off and leveraging its unique data assets with new AI-led capabilities.

    Highlights

    5

    • Consolidated revenue up 3% year-over-year, the highest quarterly rate since the pandemic.

    • Adjusted operating income grew 7% year-over-year, with 20 basis points of margin expansion.

    • Federal Express Corporation (FEC) adjusted operating income increased 17% ($168 million), expanding adjusted operating margin by 70 basis points.

    • U.S. domestic average daily volume (ADV) increased 5% year-over-year, driven by profitable share growth.

    • Achieved targeted $200 million in transformation-related savings in Q1.

    Concerns

    5

    • Global trade environment and de minimis exemption removal resulted in a $150 million headwind to adjusted operating income in Q1.

    • U.S. Postal Service contract expiration created a $130 million headwind to adjusted operating income in Q1.

    • FedEx Freight adjusted operating income declined by over $70 million, with adjusted operating margin contracting 250 basis points due to industrial economy weakness.

    • Full-year FY26 outlook includes a $1 billion headwind to adjusted operating profit from the global trade environment.

    • Full-year FY26 outlook includes a $160 million headwind to adjusted operating income from the USPS contract expiration.

    Guidance & targets

    21
    CategoryTargetConfidence
    Full-year Adjusted EPS
    $17.20 to $19.00 per diluted share
    high materiality
    High
    Full-year Consolidated Revenue Growth
    4% to 6%
    high materiality
    High
    Full-year Transformation-related Savings
    $1 billion
    high materiality
    High
    Full-year Adjusted Operating Income Headwind (Global Trade)
    $1 billion
    high materiality
    High
    Full-year Adjusted Operating Income Headwind (USPS Contract Expiration)
    $160 million
    medium materiality
    High
    Full-year Effective Tax Rate
    approximately 25%
    low materiality
    High
    Full-year Federal Express Corporation (FEC) Revenue Growth
    6% increase
    medium materiality
    Medium
    Full-year Federal Express Corporation (FEC) Adjusted Operating Margin
    down slightly
    medium materiality
    Medium
    Full-year FedEx Freight Revenue Growth
    low single-digit improvement
    medium materiality
    Medium
    Full-year FedEx Freight Adjusted Operating Margin
    down year-over-year
    medium materiality
    Medium
    Q2 Adjusted EPS
    sequential improvement
    medium materiality
    High
    Q2 Federal Express Corporation (FEC) Operating Margins
    maintain or improve sequentially
    medium materiality
    High
    Q2 FedEx Freight Adjusted Operating Margin
    decline to begin moderating sequentially
    medium materiality
    High
    Peak Average Daily Volume (ADV)
    modest increase
    medium materiality
    Medium
    Peak Total Volume
    mid- to high single-digit increase
    medium materiality
    Medium
    Amazon Business Onboarding Completion
    Q3 FY26
    medium materiality
    High
    FedEx Freight Spin-off
    on track for June 2026 separation
    high materiality
    High
    FedEx Freight Sales Specialists Goal
    400 sales specialists
    low materiality
    High
    Annual Capital Expenditure
    $4.5 billion
    high materiality
    High
    Voluntary Pension Contributions
    up to $400 million
    medium materiality
    High
    General Rate Increase (GRI)
    5.9%
    medium materiality
    High

    Segment performance

    5
    SegmentRevenueYoYQoQMargin
    Consolidated
    Highest quarterly revenue growth rate since the pandemic, despite significant headwinds from reduced international export demand and USPS contract expiration.
    Adjusted operating margin expansion: 20 bps
    		up 3%3%—adjusted operating income up 7%
    Federal Express Corporation (FEC)
    Fourth consecutive quarter of year-over-year adjusted margin expansion, driven by higher yields, cost reduction, and increased U.S. domestic package volume. Partially offset by higher wage/purchase transportation rates and trade/USPS headwinds.
    Adjusted operating income growth: 17%Adjusted operating margin expansion: 70 bps
    		up 4%4%—adjusted operating income increased by $168 million
    FedEx Freight
    Pressured by prolonged weakness in the industrial economy and excess capacity in the truckload market. Focused on revenue quality and building a dedicated sales team.
    Adjusted operating margin contracted: 250 bpsAverage daily shipments: declinedRevenue per shipment: declined 1%Weight per shipment: flat year-over-year
    		———adjusted operating income declined by just over $70 million
    International Priority and Economy Freight
    Strong Q1 revenue growth with high flow-through, supported by the Tricolor strategy.
    Revenue per pound: increased 9%
    		up 14%14%——
    Europe
    Best new business quarter in the last 2 years, driven by Express parcel growth on intra-European and Transatlantic lanes. Business balanced between B2B and B2C customers.
    		———meaningful contribution to year-over-year FEC profit improvement

    Operational metrics

    20
    Adjusted EPS
    $3.83up 6% YoY
    Q1 FY26

    Above the midpoint of the adjusted EPS outlook range.

    Adjusted Operating Income Growth
    $90 millionup YoY
    Q1 FY26

    Despite $150 million headwind from global trade and $130 million from USPS contract expiration.

    Transformation-related Savings
    $200 million
    Q1 FY26

    Achieved in Q1 FY26.

    Adjusted Operating Income Headwind (Global Trade)
    $150 million
    Q1 FY26

    Primarily driven by reduced demand out of China on the U.S. lane.

    Adjusted Operating Income Headwind (USPS Contract Expiration)
    $130 million
    Q1 FY26

    Will lap the expiration at the end of September.

    GAAP Tax Rate
    27.3%
    Q1 FY26

    Higher than expected, unfavorably impacted by nonrecurring income tax expense related to prior year tax return filings.

    Cash on Hand
    $6.2 billion
    Q1 FY26

    Exiting Q1 FY26.

    Stock Repurchased
    $500 million
    Q1 FY26

    Opportunistically purchased during the quarter.

    Remaining Stock Repurchase Authorization
    $1.6 billion
    Q1 FY26

    Under 2024 authorization; expects to continue repurchasing shares during remainder of FY26.

    USPS Contract Top Line Headwind
    $280 million
    Q1 FY26

    This headwind goes away in Q2 and beyond.

    Freight Spin Costs
    $600 million
    FY26

    Largely driven by IT and systems enhancements, with smaller staffing costs.

    FY26 Adjusted Operating Income (Midpoint Scenario)
    $6 billion
    FY26

    Based on the midpoint of the FY26 adjusted EPS range, showing year-over-year elements embedded in the outlook.

    Network 2.0 Optimized Stations
    360
    Q1 FY26

    Total optimized station count.

    Network 2.0 Average Daily Volume Flow
    3 million
    exiting September

    Average daily volume flowing through Network 2.0 optimized operations.

    Purple Tail Transpacific Asia Outbound Capacity Reduction
    25%YoY
    Q1 FY26

    Part of Tricolor strategy to flex network capacity.

    Third-Party White Tail Capacity Reduction
    similar percentages
    Q1 FY26

    Reduced in line with purple tail capacity.

    Packages Moved Daily
    17 million
    daily

    Generating significant data.

    Data Generated Daily
    2 petabytes
    daily

    Unique and valuable data for AI.

    Transactions Across Software Applications
    100 billion
    daily

    Reflects the scale of digital operations.

    Sunday GDP Coverage
    65%
    Q1 FY26

    Coverage of U.S. GDP on Sundays.

    Industry KPIs

    10
    MetricValueDetails
    Smb b2b mixmore than 10%%
    Long term targets—
    Average daily volume5%%
    Healthcare vertical mix—
    Network reconfiguration360stations
    Revenue per piece yield3%%
    Fuel surcharge mechanics—
    Amazon customer concentration—
    Cost reduction program progress$200 millionUSD
    International trade lane trends—

    Product announcements

    1
    ProductTypeDetails
    Dublin-Indianapolis Flightlaunch

    Deals & partnerships

    2
    Best BuyNamed FedEx as their primary national parcel carrier.

    Best Buy will leverage FedEx's advanced visibility tool to provide real-time tracking data and customer order communication.

    AmazonOnboarding new business.

    Onboarding of new Amazon business, with minimal impact in Q1 as expected. Onboarding expected to be complete by Q3.

    Capital programs

    2
    Network 2.0 Facility Enhancements and Modernizationunderway

    Q1 CapEx of $623 million was driven by Network 2.0 related facility enhancements and modernization.

    Fleet Maintenance (Aircraft and Vehicles)underway

    Q1 CapEx of $623 million included continued investments to maintain the fleet of aircraft and vehicles.

    Risks & headwinds

    6
    Global Trade Environment Volatility and UncertaintyQ1 FY26 and full-year FY26

    $150 million headwind to adjusted operating income in Q1 FY26; $1 billion headwind to adjusted operating profit for full-year FY26.

    Mitigation: Flexing network capacity (Tricolor), shifting capacity to profitable lanes, working closely with customers to navigate de minimis changes, leveraging digital tools for clearance.

    U.S. Postal Service (USPS) Contract ExpirationQ1 FY26 and full-year FY26

    $130 million headwind to adjusted operating income in Q1 FY26; $280 million top-line headwind in Q1 FY26; $160 million headwind to adjusted operating income for full-year FY26.

    Mitigation: Will lap the expiration at the end of September; focusing on profitable share growth in other segments.

    Weakness in Industrial EconomyQ1 FY26, prolonged

    FedEx Freight adjusted operating income declined by over $70 million and margin contracted 250 bps in Q1 FY26.

    Mitigation: FedEx Freight focused on revenue quality, standing up dedicated sales team, poised for growth and margin expansion when demand improves.

    Higher Wage and Purchase Transportation RatesQ1 FY26

    Partially offset FEC adjusted operating income improvement in Q1 FY26.

    Mitigation: Continued cost reduction efforts and yield management.

    De Minimis Exemption Removal (Global)Full-year FY26 (effective end of August)

    $100 million bottom-line pressure and $300 million incremental expense for full-year FY26.

    Mitigation: Working closely with customers, leveraging learnings from prior experiences, automating clearance inputs.

    Mix Shift to Lower-Yielding TrafficOngoing

    Contributes to pressure on operating leverage.

    Mitigation: Focus on strategic profitable market share acquisition, high-value verticals (SMB, B2B, healthcare), and revenue quality.

    What to watch in Q2 FY26

    5

    Amazon Business Onboarding Completion

    Q3 FY26
    CurrentMinimal impact in Q1 FY26
    TargetComplete by Q3 FY26

    Why it matters

    Successful onboarding of this profitable business is expected to support continued U.S. domestic revenue growth.

    We believe the onboarding will be complete by the third quarter, which will support continued U.S. domestic revenue growth in the quarters ahead.

    Q&A highlights

    8

    Are the low and high ends of the full-year EPS range solely a function of the revenue range, or are other factors at play?

    The EPS range is determined by a variety of dynamic factors beyond just revenue, including global trade evolution, industrial economy health, U.S. domestic demand, B2B vertical traction, and inflation. It's not any single factor.

    “It's not any one factor. It's a variety of factors, and we're going to be monitoring those closely. It's going to be a very dynamic environment that we intend to capitalize on.”

    asked by Jordan Alliger · answered by John Dietrich

    2 min read5 chapters

    Detailed Narrative

    01

    Transformation Progress and Network Optimization

    FedEx continues to advance its transformation initiatives, including the Tricolor strategy and Network 2.0 rollout. The Tricolor strategy has enabled dynamic capacity adjustments, such as a 25% year-over-year reduction in purple tail transpacific Asia outbound capacity, while shifting capacity to profitable lanes like Asia to Europe. Network 2.0 is progressing well, with approximately 360 optimized stations across the U.S. and Canada, handling nearly 3 million in average daily volume by the end of September, enhancing efficiency and customer experience.

    02

    Digital Strategy and AI Leadership

    The company is entering a new chapter in leveraging data and technology, viewing information about packages as critical as the packages themselves. FedEx processes 17 million packages daily, generating 2 petabytes of data and 100 billion transactions, providing an unmatched view of global supply chain patterns. The recent hiring of Vishal Talwar as Chief Digital and Information Officer aims to accelerate scaling AI across the enterprise and explore new revenue models by monetizing these unique data assets, with more details expected at the Investor Day in February 2026.

    03

    FedEx Freight Spin-off Update

    Preparation for the spin-off of FedEx Freight into a separate public company is on track for June 2026. Key milestones achieved include submitting a confidential Form 10 to the SEC in August and requesting a private letter ruling on tax treatment from the IRS in September. FedEx Freight is also building out its dedicated sales team, with about 200 frontline LTL sales personnel already onboard, aiming for 400 prior to the spin-off, to improve customer experience and drive future growth.

    04

    Q1 Performance and Commercial Strategy

    FedEx delivered a solid Q1 FY26, with consolidated revenue up 3% year-over-year and adjusted operating income growing 7%. This performance was driven by strength in U.S. domestic package services, where ADV increased 5% year-over-year due to profitable share growth. The company's commercial strategy focuses on high-value segments like SMB, B2B, and healthcare, with U.S. domestic small business revenue growing over 10% and significant healthcare-related growth in global air freight.

    05

    Global Trade Environment and De Minimis Impact

    The global trade environment, particularly the removal of the de minimis exemption in the U.S., presented significant headwinds. FedEx experienced a $150 million impact to adjusted operating income in Q1, primarily from reduced demand on the China to U.S. lane. The company has been working closely with customers to navigate these changes, leveraging past experiences and digital tools to maintain access to the U.S. market and mitigate costs, while pivoting commercial efforts to other profitable international lanes.

    AI-generated summary of the company’s earnings call. Not investment advice.