FedEx (NYSE:FDX) executives said the company delivered “very strong results” in its fiscal third quarter, citing its “most profitable” peak season on record, continued progress on its Network 2.0 transformation, and share gains in higher-margin business-to-business (B2B) verticals. Management also reiterated that plans to spin off FedEx Freight on June 1 remain on track.
Quarter results: revenue up 8% and adjusted EPS up 16%
Chief Executive Officer Raj Subramaniam said consolidated revenue rose 8% year over year, driven by yield and volume strength across “nearly all” package services. Adjusted operating income increased 7% despite headwinds including global trade policy shifts, a challenging less-than-truckload (LTL) demand environment at FedEx Freight, and the grounding of the company’s MD-11 fleet. He added that the company also overcame significant weather-related service constraints.
FEC growth and margin expansion; Freight pressured by LTL softness and spin costs
Subramaniam said results were “largely driven” by Federal Express Corporation (FEC), which grew revenue 10% and expanded adjusted operating margin by 50 basis points. He said the quarter marked the sixth consecutive quarter of margin expansion at FEC, with adjusted operating income up 18%.
Chief Customer Officer Brie Carere said FEC’s performance was supported by 10% U.S. domestic package revenue growth, which she described as the highest quarterly U.S. domestic revenue since fiscal 2022. International export package revenue increased 8%, with Europe and the Asia-to-Europe lane highlighted as key drivers. Carere also said FedEx continued to win profitable share in global air freight, with 14% growth in international priority and economy freight revenue, supported by its “Tricolor strategy.”
At FedEx Freight, Carere said revenue declined 5% due to lower shipments, while management emphasized a focus on “revenue quality.” She said the segment saw sequential increases in revenue per shipment and improved attainment of contractual price increases. Shipments at Freight declined 6% year over year amid continued LTL industry trends.
Dietrich said Freight adjusted operating income fell $127 million year over year due to market softness and separation costs tied to the planned spin. He said approximately $60 million in separation-related costs were incurred in the quarter and were not adjusted out of results, and that base yield improvements only partially offset the demand and separation headwinds.
Network 2.0 rollout and operational initiatives
Management emphasized progress toward creating “one integrated intelligent network.” Subramaniam said that by the end of the month, about 35% of eligible volume would be flowing through nearly 400 Network 2.0 optimized facilities. He said FedEx remains on track for roughly 65% of eligible volume to flow through Network 2.0 facilities by next peak season and reiterated an expectation of $2 billion in cumulative savings from Network 2.0 and associated One FedEx initiatives by the end of 2027.
Subramaniam said this was the first peak season with meaningful volume running through Network 2.0 facilities and pointed to “data-driven solutions” supporting the rollout. He cited a new unload trailer prioritization tool that uses real-time data to sequence yard operations based on trailer content, which he said helps prioritize time-critical packages.
Internationally, Subramaniam said the company flexed its air network in response to trade policy changes, reducing trans-Pacific outbound purple-tail and white-tail capacity by about 15% and 25%, respectively, during the quarter. He said Asia-to-Europe and intra-Asia lanes—where some capacity was reallocated—continued to drive strong revenue growth.
Dietrich quantified the MD-11 fleet grounding impact, saying it created a $120 million headwind to adjusted operating income in the quarter due to higher operating costs and lost revenue. He said the company expects an additional year-over-year headwind of up to $55 million in the fourth quarter as it plans to begin returning aircraft to service late in the quarter.
Pricing, yield and new offerings
Carere said FedEx’s pricing strategy continued to drive yield growth. She noted “strong capture rates” on a 5.9% general rate increase implemented in January and said the company enhanced its dimensional pricing models in package and express freight using machine-learning tools that improve accuracy. She also said a fuel surcharge adjustment implemented in December supported third-quarter results.
In the third quarter, Carere said U.S. domestic package yield rose 5%, while international export package yield grew 6% due to higher weight per shipment tied to a de minimis change, favorable currency, and revenue-quality actions. At FedEx Freight, revenue per shipment increased 1%, primarily due to increased weight per shipment.
On product and innovation, Carere highlighted FedEx Returns+, described as an AI-powered digital tracking and returns offering launched in the U.S., with expansion to Europe planned for April. Subramaniam also discussed initiatives under FedEx Digital Intelligence, including a collaboration with Dun & Bradstreet to launch the “Dun & Bradstreet and FedEx Dataworks Retail Momentum Index,” which the company expects to publish monthly beginning in spring. He also referenced pilot efforts involving robotics for trailer unloading and loading through partnerships with Berkshire Grey and Dexterity.
Updated outlook, capital spending, and Freight spin details
FedEx raised its fiscal 2026 adjusted earnings outlook to $19.30 to $20.10 per diluted share, up from a prior range of $17.80 to $19.00. Subramaniam said the increase reflects strength in third-quarter results and updated fourth-quarter assumptions. Dietrich said the midpoint implies fourth-quarter adjusted EPS of about $5.80, which would be the company’s highest quarterly earnings of the year, though he cautioned the sequential step-up from Q3 to Q4 is expected to be smaller than in recent years because peak profitability was unusually strong in Q3.
Carere also raised the company’s revenue outlook, saying FedEx now expects 6% to 6.5% consolidated revenue growth for fiscal 2026, up from a prior 5% to 6% forecast. For the fourth quarter, she said the outlook implies 6% to 7.5% consolidated revenue growth, with FEC revenue growth of about 8% at the midpoint. For FedEx Freight, she said fiscal 2026 revenue is now expected to be down low single digits year over year, with revenue flat to down slightly in Q4 due to continued LTL demand weakness; yield growth is expected to partially offset a mid-single-digit percentage decline in shipments.
Dietrich said the revised outlook does not include incremental share repurchases in Q4 and embeds an EPS headwind from a higher assumed share count and higher interest expense following FedEx Freight’s recent debt issuance. He said that combined impact represents about a $0.10 sequential and year-over-year headwind embedded in the Q4 outlook.
On capital spending, Dietrich said FedEx expects FY 2026 capex of no more than $4.1 billion, down at least $400 million from the $4.5 billion forecast provided in December. He reiterated a commitment to keep aircraft capex at $1 billion or below this fiscal year and through 2029. He added that capex discipline and higher expected adjusted operating income supports “further upside” to the company’s previously discussed FY 2026 adjusted free cash flow assumption of $3.8 billion, and reiterated a $6 billion adjusted free cash flow target in 2029 for FedEx Corp, excluding Freight.
Regarding the Freight separation, Dietrich said FedEx Freight completed a $3.7 billion debt offering in January, which he called an important milestone because Freight intends to dividend net proceeds to FedEx Corp in connection with the spin. Management said Freight separation-related investments include building IT infrastructure and adding talent to support a standalone public company.
During Q&A, executives said the Middle East conflict is being monitored closely, emphasizing employee safety and the company’s ability to reroute traffic around affected areas. Subramaniam said the Middle East is a “relatively small” part of total revenue and that demand trends in the first two weeks of March were in line with expectations. Carere said FedEx does not expect a material impact in Q4 from the conflict, noting that the company has implemented demand surcharges and is adjusting pricing based on market capacity changes.
About FedEx (NYSE:FDX)
FedEx Corporation (NYSE: FDX) is a global logistics and courier company headquartered in Memphis, Tennessee. Founded by Frederick W. Smith in 1971 and beginning operations in the early 1970s, the company pioneered overnight express shipping and has since expanded into a diversified portfolio of transportation, e-commerce and supply-chain services. FedEx operates an integrated air-and-ground network that moves parcels, freight and documents for businesses and consumers worldwide.
FedEx’s core operating segments include express parcel delivery via its FedEx Express division, domestic and residential parcel delivery through FedEx Ground, less-than-truckload (LTL) freight services, and logistics and supply-chain management solutions.
