FEDEX CORP FDX

FedEx delivered strong Q2 FY26 results, achieving 7% year-over-year revenue growth, 17% adjusted operating income growth, and 19% adjusted EPS growth. This performance was achieved despite significant headwinds, including the unexpected grounding of its MD-11 fleet, nationwide air traffic constraints, industrial economy weakness, and global trade policy changes. Management attributed this success to the rigor embedded in its culture and the ongoing Network 2.0, Tricolor, and structural cost reduction initiatives, all enabled by data and technology.

The unexpected grounding of 25 out of 34 owned MD-11s impacted Q2 adjusted operating income by $25 million. FedEx's network planning team swiftly implemented contingencies, including trucking more U.S. domestic volume, shifting volume to other aircraft, adding third-party lift, and adjusting maintenance schedules. This allowed the company to mitigate operational and financial impacts, despite losing about 4% of global cargo capacity before mitigation during peak season. The MD-11s are expected to return to service in Q4 FY26, with significant incremental costs anticipated in Q3 FY26, particularly in December.

The spin-off of FedEx Freight into a separately listed public company remains on track for June 1, 2026. Marshall Witt was appointed CFO of FedEx Freight, completing the executive leadership team. The company submitted its confidential Form 10 to the SEC and requested a private letter ruling from the IRS for tax treatment. FedEx Corp. intends to retain up to 19.9% of FedEx Freight's outstanding shares, to be monetized within an IRS-permitted timeframe. An Investor Day for FedEx Freight is scheduled for April 8, 2026.

FedEx's commercial strategy focuses on high-value growth segments, with B2B services contributing nearly half of the Q2 revenue growth. This includes wins in healthcare and automotive, such as incremental business from BMW. The company has formalized a data center and infrastructure vertical team to capitalize on significant CapEx investments in this market. Digital tools, like the premium integrated visibility tool used by Wayfair, are supporting revenue growth by improving customer outcomes and reducing service calls.

Network transformation remains a key priority, with Kawal Preet named EVP of Planning, Engineering and Transformation to enhance global integrated network progress. Approximately 24% of eligible average daily volume now flows through 355 Network 2.0 optimized facilities, with over 150 facilities closed. FedEx is scaling AI adoption across its 500,000+ employees through a global AI program and exploring digital solutions like logistics intelligence insights, exemplified by a strategic collaboration with ServiceNow to monetize proprietary data.

FedEx remains committed to prudent capital allocation and maximizing stockholder returns. During Q2, the company repurchased nearly $300 million worth of stock, with $1.3 billion remaining under its 2024 stock repurchase authorization. Year-to-date CapEx is $1.4 billion, targeting $4.5 billion for FY26. The company also reduced its voluntary pension contributions for U.S. qualified plans to $275 million from a prior forecast of up to $400 million due to the healthy status of its pension plan.

The revised FY26 adjusted EPS outlook of $17.80 to $19.00 reflects a range of potential scenarios. The second half outlook anticipates somewhat limited flow-through compared to the first half due to several discrete items^📎. These include higher variable incentive compensation accruals ($265 million headwind), continued weakness in the LTL business ($160 million headwind), and meaningful headwinds from MD-11 groundings ($175 million headwind, primarily in Q3). These items collectively represent a $600 million year-over-year headwind to adjusted operating income in the second half, and nearly $900 million for the full year.