FedEx Q1 Earnings Call Highlights

Key Points

• FedEx reported strong quarterly growth: Revenue rose 12%, adjusted operating income increased 16%, and adjusted EPS climbed 28% to $3.74, supported by B2B shipping, international air freight and premium consumer services.
• International operations led profit growth, with revenue up 17% and adjusted operating income up 52%. Domestic results remained positive, though margins faced temporary pressure from fuel, transportation, labor and aircraft-maintenance costs.
• FedEx raised its outlook to $18–$18.60 in calendar 2026 adjusted EPS and approximately $4 billion in free cash flow, while continuing network restructuring, portfolio changes and share repurchases.

FedEx NYSE: FDX reported higher revenue, earnings and free cash flow in its third calendar quarter, supported by growth in business-to-business shipping, international air freight and premium business-to-consumer services. The company raised and narrowed its full-year adjusted earnings outlook as it continues to restructure its network, reshape its portfolio and return capital to shareholders.

President and CEO Raj Subramaniam said quarterly revenue rose 12% year over year, while consolidated adjusted operating income increased 16%. Adjusted earnings per share were $3.74, up 28% from a year earlier, according to Interim CFO Claude Russ.

FedEx said revenue growth included a 4-percentage-point contribution from fuel-price-driven surcharge revenue. The company cited strong base yields in U.S. domestic and international operations, as well as demand from B2B customers in sectors including healthcare, aerospace, automotive, defense and AI data centers.

International business drives profit growth

FedEx’s international segment was a notable contributor during the quarter. International revenue increased 17% and adjusted operating income rose 52%, with adjusted operating margin expanding 80 basis points. Russ attributed the result to pricing, higher international export volume and increased air freight weight, particularly from Asia and the U.S.

Chief Customer Officer Brie Carere said international freight revenue climbed 28% year over year, while international export volume increased 8%. International air freight average daily freight pounds rose 15%.

International package yield increased 17%, including a 16% increase in international priority yield. Carere said about half of the international export yield increase was related to fuel, while the remaining improvement reflected a mix shift toward higher-value volumes and away from lower-yielding domestic international business.

FedEx expects international yield growth to moderate in 2027 as it laps the service-mix change. Still, Subramaniam said the company is targeting an 8% international operating margin by calendar 2029 and views that target as “only a waypoint” toward double-digit margins over time.

Domestic operations face temporary cost pressures

U.S. domestic revenue rose 10% and adjusted operating income increased 7%, although adjusted operating margin declined 20 basis points. FedEx said higher fuel-price effects represented a 30-basis-point headwind to domestic margin, while purchased transportation costs also increased.

Carere said U.S. domestic average daily volume rose 2%, led by 4% growth in U.S. Priority volume and 3% growth in Ground commercial volume. Ground economy volume declined 4% as part of the company’s strategy to emphasize premium services and improve its revenue mix.

U.S. domestic package yield increased 7%, with mid- to high-single-digit yield growth across services. Carere said roughly half of the year-over-year domestic yield growth came from base yield, with the majority of that portion driven by pricing rather than mix.

Russ said higher over-the-road line-haul transportation rates are expected to create a $130 million headwind in the fourth quarter. FedEx also expects fourth-quarter pressures from a $100 million impact tied to its recently ratified pilot agreement and $80 million of aircraft maintenance expense.

Management characterized several of those factors as transitory and said it expects full-year adjusted U.S. domestic operating margin to increase year over year in calendar 2027.

Network and portfolio changes continue

FedEx said it has routed nearly 65% of eligible volume through about 630 Network 2.0 optimized stations and has closed more than 260 stations. The company expects Network 2.0 and associated One FedEx initiatives to produce nearly $1 billion in savings by the end of calendar 2026 and cumulative savings of $2 billion by the end of 2027.

In Europe, FedEx is consolidating and modernizing its network while prioritizing higher-margin cross-border B2B and export services. The company has closed 17 stations in France, modernized two hubs and 16 key stations, and added tracking and visibility technology at 32 facilities. In Italy, FedEx is moving from an eight-hub network to a three-hub model.

Subramaniam said FedEx remains on track to achieve $650 million in international adjusted operating income improvement in Europe by the end of calendar 2029, with the majority expected to come from cost reductions.

The company also highlighted its portfolio actions. FedEx Freight was spun off on June 1, FedEx Supply Chain was sold to CMA CGM Group earlier in October, and FedEx said it is nearing completion of its InPost transaction. The InPost investment and commercial agreements are intended to provide access to InPost’s European B2C network while allowing FedEx to focus its own European assets on B2B business.

Outlook and capital allocation

FedEx raised and tightened its calendar 2026 adjusted EPS outlook to a range of $18 to $18.60, with the midpoint implying 23% year-over-year growth. The company expects approximately 12% full-year revenue growth, including about four percentage points from fuel-related surcharges, and introduced an adjusted free cash flow outlook of approximately $4 billion.

For the fourth quarter, FedEx expects approximately 10% revenue growth, with high-single-digit domestic revenue growth and high-teens international revenue growth. Its implied adjusted EPS range is $6.03 to $6.63.

FedEx repurchased $2 billion of stock since June, exceeding its original plan, and has $4.3 billion remaining under its board authorization. Russ said the company plans to continue repurchasing shares opportunistically while maintaining a balanced approach to dividends, buybacks and strategic investments.

The company expects calendar 2026 capital expenditures of $3.9 billion, with 90% devoted to maintenance or efficiency-related investments. FedEx reiterated its goal of reaching a 4% capital-expenditure-to-revenue ratio by the end of 2029.

About FedEx (NYSE:FDX)

FedEx Corporation NYSE: FDX is a global transportation, e-commerce and business services company headquartered in Memphis, Tennessee. Through its operating companies, FedEx provides time-definite express delivery, ground shipping, freight transportation, customs brokerage, logistics and supply chain services for businesses, governments and consumers.

The company's services include domestic and international package delivery, less-than-truckload freight transportation, warehousing, fulfillment, supply chain management and specialized logistics solutions.

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