FedEx Q3 2026 Earnings Call Transcript

FedEx (NYSE:FDX) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

FedEx Corporation reported a 12% year-over-year revenue growth for Q3, driven by strong base yields and robust performance in B2B and premium B2C verticals.

The company achieved a 16% increase in adjusted operating income, despite facing cost headwinds from transportation rates and pilot agreements.

Strategic initiatives included the optimization of the European network and the successful spin-off of FedEx Freight, enhancing operational efficiency.

FedEx raised its calendar year 2026 EPS outlook to $18 to $18.60, implying a 23% growth year over year, and expects to generate approximately $4 billion in adjusted free cash flow.

Notable operational highlights include a 10% revenue growth in Express Domestic and a 17% increase in Express International, with significant improvements in air freight demand.

Management emphasized strategic actions like stock repurchases, network 2.0 optimizations, and collaborations to boost service capabilities and profitability.

The company expanded its capabilities in verticals like automotive and life sciences, with enhanced customer solutions and service experiences.

FedEx plans a capital expenditure of $3.9 billion for CY26, focusing on maintenance and efficiency, while maintaining a strong balance sheet and creditworthiness.

Full Transcript

OPERATOR

Good day and welcome to the FedEx third quarter calendar year 2026 earnings call. All participants are in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded.

I would now like to turn the conference over to Jenny Hollander, Vice President of Investor Relations. Please go ahead.

Jenny Hollander (Vice President of Investor Relations)

Good afternoon and welcome to FedEx Corporation’s calendar 2026 third quarter earnings conference call, our first earnings call that aligns our results with the calendar year-end fiscal year. The third quarter Earnings Release, Stat Book, and Form 10-Q, which also includes June 2026 results, are on our website at investors.fedex.com. Additionally, this afternoon we released an 8-K filing with our recast and resegmented financials for Q1 and Q2 of this calendar year.

This call and the accompanying slides are being streamed from our website. During our Q&A session, callers will be limited to one question to allow us to accommodate all those who would like to participate. Certain statements during this conference call may be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For additional information on these factors, please refer to our press releases and filings with the SEC.

Today’s presentation also includes certain non-GAAP financial measures. Please refer to investors.fedex.com for a reconciliation of the non-GAAP financial measures discussed during this call to the most directly comparable GAAP measures. Joining us on the call today are Raj Subramaniam, President and CEO, Bri Carreri, Executive Vice President and Chief Customer Officer, and Claude Russ, Enterprise Vice President and Interim CFO. Now I will turn the call over to Raj.

Raj Subramaniam (President and Chief Executive Officer and a member of the Board of Directors)

Thank you, Jenny, and well done to Team FedEx for delivering another strong quarter. We are serving our customers well, driving significant free cash flow, and sustaining momentum toward our 2029 financial commitments. In the third quarter we grew revenue across key B2B verticals and premium B2C, which supported double-digit growth in consolidated adjusted operating income. From Network 2.0, the optimization of our European network, to our global air freight strategy, we continue to transform FedEx, driving greater density, flexibility, and efficiency, building our data and technology advantage.

We announced new collaborations to provide value-added services for existing and new customers. We’ve also taken meaningful strategic actions to become a more focused company while deliberately allocating capital to create stockholder value. On June 1st we successfully spun off FedEx Freight, and earlier this month we closed the sale of FedEx Supply Chain to CMA CGM Group, and we are nearing completion of the Impulse transaction. This investment and subsequent commercial agreements will provide FedEx with access to Impulse’s expansive European B2C network while enabling us to deploy our assets more effectively across the European B2B space.

Our earnings performance, solid execution from these portfolio-shaping actions, and capex discipline are driving strong adjusted free cash flow. With this cash generation, we are focused on rewarding our stockholders. Since June we have repurchased $2 billion worth of FedEx stock. Our June through September repurchases were greater than our original plan and a reflection of our conviction in the substantial value that exists in our shares. Turning to our Q3 consolidated results, on a year-over-year basis we grew revenue by 12%, supported by strong base yields across both our Express U.S. domestic and international segments. We more than offset cost headwinds from purchased transportation rates, the new pilot agreement, and variable compensation, growing adjusted operating income by 16%. With Express Domestic we grew revenue by 10% and adjusted operating income by 7%. With Express International we grew revenue by 17% and adjusted operating income by 52%.

We are focusing our commentary today on calendar Q3 covering the July through September period. However, given it has been four months since we last reported earnings, it’s also important to acknowledge the strength, as expected, in our June results. Based on our performance over the four-month transition period and increased visibility into the remainder of the calendar year, we are raising and tightening our CY26 outlook to $18 to $18.60. The midpoint of the range implies 23% adjusted earnings per share growth year over year for the full year.

Additionally, we expect to generate approximately $4 billion in adjusted free cash flow this calendar year. Consistent with our strategy, B2B service drove the majority of our quarterly revenue growth, reflecting strong execution by our commercial and operations teams. Our expanding capabilities across key verticals are enabling us to address more of our customers’ logistics needs, unlocking air freight demand from traditionally parcel-centric customers. For example, we drove a 15-fold increase in aircraft engine moves and won new air freight business with an AI data center customer after a more than 40-year largely parcel-centric relationship.

Differentiation is increasingly centered on deep customer relationships and tailored service experiences, positioning us to capture more volume as we address customers’ needs beyond parcel. Our network transformation initiatives remain on track. We now have nearly 65% of eligible volume flowing through 630 Network 2.0 optimizations. Additionally, we closed more than 260 stations. Combined with our effective commercial strategy, this network optimization is leading to tighter capacity utilization across our surface network. We continue to expect Network 2.0 progress to translate to nearly $1 billion of Network 2.0 and associated One FedEx savings by the end of this calendar year and a cumulative $2 billion by the end of 2027.

In Europe, we are replacing a fragmented domestic structure with a lean, digitally enabled network built for high-margin, cross-border flow and long-term European market competitiveness. This includes simplifying the service we provide our customers and operating as one integrated, modernized network. In January, we announced a transformation program for our domestic French operations, and we recently finished our social consultation process there.

As of this month, we closed 17 French stations. We also modernized 216 key stations with advanced sorting automation and equipped 30 facilities with new tracking and visibility technology. In Italy, similar to France, we are fundamentally simplifying our operating model to prioritize higher-value international B2B and export services. As part of this process, we are transitioning from an eight-hub footprint to a highly streamlined three-hub model and actively reducing our station count.

In June we reached an important milestone when we consolidated two Milan-area stations into a newly upgraded facility that allows us to optimize our pickup and delivery within one of the most densely populated areas of the country. Taking these examples together, we are re-engineering the region for service and profitability at the right scale. While a transformation of this size takes time, we are on track to achieve our target of a $650 million Europe-driven improvement in International Adjusted Operating Income by end of 2029.

The size and scope of our global end-to-end network, combined with the vast amount of data we generate, allows us to provide customers with actionable insights and visibility tools to better manage their own supply chains. These interactions, in turn, present us with incremental revenue opportunities, creating an unrivaled virtuous cycle demonstrating the unique power of our physical and digital networks. We recently announced a collaboration with the U.S. Army.

Our team of logistics and technology experts is supporting a sweeping modernization of the Army’s U.S. non-tactical logistics networks, supply chain procedures, and organic industrial base sites. This is just one example of our leadership role in logistics orchestration, which we view as a new market opportunity that complements our traditional shipping business. When it comes to physical AI, our network is already one of the most automated in the world. We are making notable strides in automating our load and unload operations to help create a safer and more efficient environment for our team members. For example, in collaboration with Dexterity, we are deploying robotic loaders at our Hagerstown, Maryland hub to support peak and post-peak operations, allowing us to prove this technology in the coming months.

As we head into peak, I want to thank Team FedEx for the continued hard work. I remain very excited about the momentum in our business as we serve our customers with excellence, generate significant free cash flow, and create value for our stockholders. Before I turn the call over to Bri, I want to welcome Jamir Jackson, whom we announced as our next Chief Financial Officer, effective November 30. Jameer brings a wealth of experience, having served as CFO at several public companies.

Most recently he served as CFO of AutoZone, where his responsibilities also included leadership of Store Development, providing a valuable combination of financial and operational experience. I look forward to working with Jameer as we continue to execute on the strategic priorities we outlined at our Investor Day in February. I also want to offer my sincere thanks to Claude Russ for his extraordinary leadership as Interim Chief Financial Officer over the past five months.

His commitment to FedEx, our team members, and our stockholders has helped ensure a seamless transition while continuing to move our strategic priorities forward. Claude, thank you for your partnership during this important period. Deeply appreciative. Now over to Bri.

Brie Carere (Executive Vice President and Chief Customer Officer)

Thank you, Raj. My sincere thanks to the team for their outstanding work serving our customers in Q3 and their tremendous efforts as we prepare for Peak. As our results indicate, we are deepening partnerships with customers who value speed, precision and the capabilities we offer at FedEx, allowing us to profitably grow Q3 revenue growth by 2.4 billion year over year. In a very dynamic market with rapidly evolving global trade policies and geopolitical developments, customers require a trusted partner to help them navigate changing requirements, manage cross-border costs and maintain resilient supply chains.

Our end-to-end network, customs and trade expertise, and integrated technology capabilities uniquely position us to help customers respond with scale, speed, flexibility and confidence. Turning to our Q3 results, revenue was up 12%, which includes a 4 percentage point boost from fuel price-driven surcharge revenue. Underlying revenue growth was supported by base yield expansion across both segments along with U.S. domestic and international export volume growth. We were particularly encouraged by the strength from our B2B customers, including the fast-growing data center vertical, which supported 28% year over year growth in international freight.

Revenue volume trends were broadly aligned with last quarter. U.S. domestic ADV increased 2% year over year, driven by 4% growth in U.S. Priority volume and 3% growth in Ground commercial. Consistent with our strategy to focus on differentiated premium services, core Ground Economy volume declined 4% for the third consecutive quarter. International export volume increased, growing 8% year over year. International domestic volume declined 11%, part of our deliberate strategy focused on higher-yielding cross-border volumes.

Within global air freight, we are solving customers’ most complex challenges through specialized premium capabilities. This approach is resonating with customers and driving growth in the highest value segments. For example, with international air freight we saw average daily freight pounds up 15% year over year. As our market-leading yields indicate, we remain focused on pricing services for the value we provide to our customers. While fuel was a meaningful driver of yield improvement, base yields remained strong.

This highlights our continued pricing discipline in a competitive but rational environment. U.S. domestic package yield was up 7%, driven by mid- to high-single-digit yield growth across all services. International package increased 17%, driven by a 16% increase in International Priority yield. Along with the mix benefit from reducing lower-yielding international domestic volume, we do expect international yield growth to moderate in 2027 as we lap this mix shift.

Additionally, we are winning share in the global air freight market based on service and our unique end-to-end solution. While growing yield, U.S. domestic freight revenue per pound was up 6% and international freight revenue per pound was up 11%. In Q3 we continued to take disciplined pricing action to support profitable growth. This summer we announced our peak season demand surcharges, which enable us to provide outstanding customer service throughout the peak season while, of course, protecting profitability. We also implemented our first-ever European domestic demand surcharge tied to peak, and last month we announced a general rate increase of 5.9% effective January 4th. We expect strong capture from these pricing actions.

I am very excited about our outstanding Q3 results and continued momentum driven by our strategic focus on B2B and premium B2C verticals. Take automotive as one example. Twelve months ago we began our journey to unlock a larger share of the automotive production market and build out our end-to-end capabilities to better serve this sector. We quickly assembled a dedicated automotive team and created a specialized model that combines 24×7 support, flexible global pickup capabilities, enhanced visibility and integrated logistics solutions tailored to the customer’s needs in automotive.

This team has since onboarded 13 major automotive customers to these value-added services, delivering long-term profitable revenue growth within this vertical. Within our FedEx Life Sciences organization, we have now achieved 30 IATA CEIV Pharma certifications across our global air hubs and cargo handling facilities. This is a major milestone and supports our strong position in the healthcare transportation market. We are also solving broader customer challenges using our expertise in global trade and digital intelligence. Last month we launched Global Trade Navigator, a great example of how we are making supply chains smarter for everyone by surfacing duties, taxes, documentation requirements and potential clearances earlier in the shipping journey.

Global Trade Navigator reduces complexity, improves cost transparency and helps businesses expand across borders with confidence. Early adoption has been strong. Thousands of customers use this new suite of capabilities through FedEx.com and our API suite. We also expect this enhanced customer experience to help reduce our clearance costs by improving data quality and reducing manual intervention. Additionally, we continue to support customers through IEIPA refund process and we remain committed to distributing these refunds as quickly as possible. For customers seeking greater security and control over deliveries, we recently introduced FedEx Authenticated Delivery. It’s a new paid delivery upgrade for customers in the United States and Canada. This solution expands our proof of delivery portfolio with a secure digital verification process using a QR code to help ensure packages are released only to an authorized recipient.

This is providing an additional layer of protection for high-value and sensitive shipments. These examples are strengthening our competitive positioning and set us up to deliver outstanding service throughout the upcoming peak season and, of course, well beyond. Turning to our revenue outlook for CY26, we now expect 12% full-year revenue growth, including approximately 4 percentage points from fuel price-driven surcharge revenue, and we expect current volume and yield trends to remain directionally similar to Q3, with some moderation in year over year U.S. domestic volume growth. Given tough comps, this outlook implies a 10% revenue growth in Q4, with U.S. domestic revenue up high single digits, including 3 points from fuel price-driven surcharge revenue, and international up high teens, including 7 points from fuel price-driven surcharge revenue.

We will remain very disciplined on pricing. We expect a sustained mid-single-digit decline in Ground Economy and double-digit decline in international domestic volume in Q4 as we continue our efforts to improve our service mix. With a significant majority of our Network 2.0 conversion work complete heading into peak, I know that the team at FedEx is ready to deliver superior service for our customers and continued strong financial results for our investors.

And with that, I’ll now turn it over to Claude.

Claude Russell

Thank you, Brie. By strategically shifting our revenue mix toward higher-yielding services and lowering our cost to serve, we grew operating income in Q3 and remain firmly on track to achieve our 2029 financial targets. Our strong operating results, coupled with a disciplined approach to capital expenditures, are driving robust free cash flow and enhancing stockholder returns. Turning to our results in more detail, on a consolidated basis, in Q3 we delivered $3.74 in adjusted earnings per share, up 28% year over year. Continued core yield strength, favorable trends from B2B parcel and air freight, benefits from transformation initiatives, and a lower effective tax rate supported these results. Consolidated adjusted operating income increased $164 million, or 16%, for Q3 despite a $100 million year-over-year headwind from our recent pilot agreement and a $75 million headwind from variable incentive compensation.

While fuel price-driven increases in surcharges drove higher revenue, they were not a material driver of the year-over-year change in our adjusted operating income in the quarter. Now taking a closer look at our segment performance, U.S. Domestic delivered higher Q3 adjusted operating income year over year of $67 million, or 7%, despite a headwind from higher over-the-road linehaul purchase transportation rates. The unique pressures in U.S. Domestic purchase transportation rates are largely tied to the broader tightening in the labor market for truck drivers from recent regulatory changes. Adjusted operating margin declined 20 basis points, driven by higher fuel price impacts, which represented a 30 basis point headwind to Q3 adjusted operating margin.

Turning to our international business, we delivered a $101 million year-over-year increase in adjusted operating income, up 52% year over year, with 80 basis points of margin expansion. This robust adjusted operating income and margin performance was driven by continued strong base pricing and higher international export volume and air freight weight, primarily out of Asia and the U.S. I’m encouraged that our tricolor strategy is driving better capacity utilization for B2B air freight services.

This strong international performance demonstrates that our strategy, though still in the early innings, is working and highlights the opportunity ahead to drive greater profitability and ultimately stronger stockholder returns. Moving to capital allocation, free cash flow growth is the bedrock of our capital returns framework. In deploying this cash, we continue to take a balanced approach across dividends, stock repurchases, and strategic growth investments. Since June, we repurchased $2 billion of FedEx stock. We have an additional $4.3 billion in buyback authorization from the Board of Directors and plan to continue to repurchase stock opportunistically. Since FY13, we have reduced our share count by 25%.

With a $6 billion adjusted free cash flow target by the end of 2029, we will allocate capital prudently in support of value creation for our stockholders. We continue to expect $3.9 billion of capex for CY26, of which 90% is maintenance or efficiency related. We remain committed to our 4% capex-to-revenue target by the end of 2029 and for aircraft capex to remain at $1 billion or less annually. Our targeted strategy to grow B2B and premium B2C services enables us to utilize our existing capacity to facilitate volume growth, which supports sustained lower capex intensity.

Our 19.9% retained ownership stake in FedEx Freight also provides meaningful optionality. To preserve the tax-efficient status of the separation, we are required to monetize the stake within 24 months of the spin date. We will deploy this capital to maximize value creation overall. Our creditworthiness and balance sheet remain resilient, as demonstrated by our $3.5 billion bond offering in the quarter, which was multiple times oversubscribed. Moving to outlook, we are introducing a CY26 adjusted free cash flow outlook of approximately $4 billion. Free cash flow anchors our decision-making and, we believe, should guide any assessment of our company’s intrinsic value given our transition from a fiscal to calendar year reporting cycle. We have now disclosed our Q1 adjusted EPS was $3.25, up 16% year over year, and Q2 adjusted EPS was $4.98, up 56% year over year. Q2 included $2.03 of adjusted EPS for the month of June supported by one extra operating day and healthy U.S. domestic demand helped in part by a timing shift from July in sales by retailers.

In this year-to-date performance and factoring in updated tax rate and share count assumptions, we are raising and tightening our CY26 adjusted EPS outlook range to $18 to $18.60. As Brie shared, we expect consolidated CY26 revenue growth to be approximately 12%, including about 4 percentage points of assumed fuel price-driven surcharge benefit for the full year. We expect adjusted operating margin to be up slightly year over year despite the fuel-related impact.

Additionally, we expect our CY26 effective tax rate to be approximately 22.5%, down 50 basis points from our prior assumption. Our revised CY26 adjusted operating income bridge shows the key year-over-year elements embedded in our outlook. This bridge reflects adjusted operating income of $5.9 billion, equivalent to $18.3 of adjusted EPS, the midpoint of our range. In this scenario, volume-related revenue net of variable cost is now expected to be an $800 million tailwind in CY26, up $200 million compared to the estimate we shared in June. This change is driven by the strong year-to-date trends as our commercial team captured increased demand from the most premium B2B verticals of the global economy.

With respect to yield, we continue to expect a $3.7 billion tailwind. This benefit demonstrates our ongoing commitment to improve our service mix and base pricing capture. Consistent with prior practice, our base yields do not factor in revenue from the fuel price-driven surcharge benefit, which we assume will be neutral to full-year adjusted operating income results. It also does not factor in revenue from currency exchange rate effects. For base expenses, we now assume $2.7 billion in higher cost year over year compared to the $2.6 billion headwind shared on our June bridge. This change primarily relates to higher purchase transportation rates. As a reminder, this bar continues to embed higher wage rates and other inflationary factors, as well as the ongoing structural cost reduction efforts, including savings from our Network 2.0 transformation. I will note that our yield versus base expense increase assumptions represent a 100 basis point spread, which signals our focus on revenue quality and rigorous cost management.

We continue to expect variable incentive compensation to be an $800 million headwind, reflecting our commitment to rewarding employees for their outstanding performance. We are still anticipating a $200 million headwind from our new pilot agreement. Additionally, we are pleased with our progress towards removing stranded costs related to the FedEx Freight spinoff and continue to forecast a $100 million benefit by the end of CY26. Our embedded Q4 adjusted EPS range is $6.03 to $6.63. Results will depend upon yield, service mix, and continued traction on cost reduction initiatives, which are highly correlated with peak season demand. While we expect consolidated adjusted operating income to be up year over year, we anticipate several transitory headwinds that will pressure our results, including $130 million tied to higher over-the-road linehaul rates, which shows up in purchased transportation, $100 million due to our recently ratified pilot agreement, and $80 million in aircraft maintenance expense.

For International, we forecast Q4 adjusted operating margin expansion year over year. We expect Q4 adjusted U.S. Domestic operating margin to be down moderately year over year due to the higher purchase transportation rates I just mentioned and the continued fuel impact. Importantly, we believe this pressure is transitory, and as we look to 2027, we forecast full-year adjusted U.S. Domestic operating margin to be up year over year. We expect our CY26 Q4 average share count to be approximately 238 million shares.

In closing, our business results and decisive actions to drive stockholder value in the quarter signal our confidence in the value creation opportunity ahead. Our strategy is sound, and I’m confident in our continued execution. With that, operator, let’s open it up for questions.

OPERATOR

We will now begin the question-and-answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Please limit yourself to one question at this time. We will pause momentarily to assemble our roster. Our first question comes from Risha Harnane with Deutsche Bank. Please go ahead.

Risha Harnane (Analyst)

Hey, thanks everyone for the time. So maybe we could start with one for Brie. Brie, you discussed a competitive but still strong pricing environment. I’m not sure if you can unpack that some more. How much was the fuel tailwind to headline yields? How much was core up? I know you said 12% revenue outlook for the year assumes a 4 percentage point boost from fuel, but curious what it was in Q3. And then on the year-over-year improvement, very impressive EPS growth but margins in the domestic market did stall a bit in the quarter.

Claude, it sounds like there are some headwinds from linehaul rate and PT that are creeping into Q4 as well. But talk about how much those were. And you made a comment that 2027 margins could be still up year over year. We can look forward to that in the domestic market. Just like how should we expect them to roll off and what are some offsets we can look forward to in 2027? Thank you.

Brie Carere (Executive Vice President and Chief Customer Officer)

Thank you for the question. I’ll cover pricing and then I’ll turn it over to Claude. To answer the second part of your question, I think from a headline perspective we continue to see that calendar year 26 has an improved pricing environment over calendar year 25. It is competitive but rational from a yield perspective. Here in the United States we were very pleased with the base yield growth, which was about half of our year-over-year yield growth in the domestic mix.

Of that half, the vast majority of it was actually base yield. We did benefit a little bit from some self-help in the mix. And what do I mean by that? We have consciously focused on premium e-commerce. So when you look at the Home Delivery and Ground Economy volume mix, it’s really important to understand that the Ground Economy volume was down 4%, and that was intentional as we really lean into the premium. So we feel really good about the domestic pricing environment.

When you look at the international export yield increase, it was also really strong. Half of that was fuel. Of the other half you’ve got two primary factors.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.