FedEx Corporation (FDX) Earnings

Management highlights

### Strategic & Transformation Progress - Exceeded the $1 billion transformation-related cost savings target set at the start of FY26, and remains on track to deliver $2 billion in total Network 2.0/1 FedEx savings by the end of calendar year (CY) 2027. - By the end of June 2026, ~45% of eligible volume will flow through 490 Network 2.0-optimized stations, rising to 65% before the peak holiday season; implementation will pause from peak through early 2027 to complete savings realization. - Achieved 12 consecutive quarters of international revenue share gains in Europe, and announced a strategic investment to expand the road hub in Duiven, Netherlands to support continued growth in premium international parcel and freight markets. Commercial & Vertical Growth - Focused on profitable growth in premium B2B verticals and high-value B2C, resulting in volume and yield growth every quarter of FY26. B2B services drove the majority of Q4 revenue growth. - Exited FY26 with nearly $10 billion in annual health care transportation revenue; launched the dedicated FedEx Life Sciences organization to support complex, regulated pharma and life sciences supply chains, with existing specialized infrastructure across Europe and APAC and new temperature-controlled global corridors. - AI and data center transportation is a rapidly scaling horizontal growth engine delivering double-digit revenue growth, with demand across the entire value chain from hyperscalers to supporting industrial infrastructure; time-critical initial shipments regularly convert to repeat, large revenue streams. - Small and medium business (SMB) segment delivered strong double-digit revenue growth in FY26, with high customer retention (higher than the overall mid-90s corporate average) driven by a mix of seamless digital experiences, loyalty programs, in-person retail touchpoints, and direct contracted shipper relationships. Operational Updates - Safely began returning the grounded MD-11 aircraft fleet to service in May 2026, working with Boeing, the FAA, and the NTSB; 4 aircraft have resumed service to date, with the full fleet expected back before peak season. Permanently retired 10 additional jet aircraft (including 5 MD-11s) as part of fleet optimization, reducing the total fleet by 8% (net 34 aircraft) since FY2022, aligned with efficiency goals. - Reached a new collective bargaining agreement with the pilot group, uniting the team around shared growth and modernization goals. - Capital discipline: FY26 CapEx came in $300 million below the March outlook at $3.8 billion, equal to 4% of revenue (the lowest capital intensity since FedEx Corporation was formed), marking only the third time in company history CapEx was lower than depreciation and amortization. - Free cash flow: FY26 adjusted free cash flow hit $4.7 billion, up $800 million year over year, with nearly 100% conversion from adjusted net income. - Capital returns: Increased the dividend by 5% (post-FedEx Freight spin off), marking the 6th consecutive annual dividend increase; plans to repurchase up to $1 billion in shares opportunistically for the remainder of CY26 to offset equity compensation dilution.

Guidance

- FedEx is transitioning to a December 31 fiscal year end, so guidance is now provided on a calendar year basis. For full CY2026, management expects: - Adjusted diluted earnings per share (EPS) from continuing operations of $16.90 to $18.10, implying 20% adjusted EPS growth for the June-December 2026 transition period. - Consolidated revenue growth of ~11% year over year (10% for the June-December transition period), including ~3 percentage points of fuel-driven surcharge benefit; growth will be broad-based, with deceleration in US domestic growth due to lapping last year's new business onboarding, and continued low-single-digit volume declines in Ground Economy and high-single-digit declines in international domestic volume as part of the yield-focused strategy. - Capital expenditures of ~$3.9 billion, with a $475 million pension contribution (the pension plan is 105% funded as of May 31, 2026). - Adjusted operating income for CY2026 is projected at $5.8 billion (the midpoint of the range), with $600 million in tailwinds from volume growth, $3.7 billion in tailwinds from base yield improvements (excluding fuel surcharges, which are expected to be neutral to operating income), partially offset by $2.6 billion in base cost increases from wages, purchased transportation and inflation, an $800 million headwind from variable incentive compensation (only $100 million incremental after the first 5 months of CY2026), a $200 million headwind from the new pilot contract, partially offset by a $100 million benefit from stranded cost removal post-spin. - For the June-December 2027 transition period: - Consolidated adjusted operating income is expected to be $3.8 billion (midpoint), up 19% year over year, with adjusted EPS of ~$11.30, representing 20% year over year growth. Both US domestic and international profit and margins are expected to improve year over year. - Management remains firmly on track to hit all CY2029 Investor Day commitments, including 14% CAGR in bottom-line earnings, $6 billion in annual adjusted free cash flow, and maintaining capital intensity at ~4% of revenue.

Segment performance

FedEx completed the spin off of FedEx Freight on June 1, 2026 (after Q4 FY26 ended), so detailed results will be covered in a separate June 25 call by FedEx Freight. For continuing operations, core performance is centered on FedEx Express Corporation (FEC): - Full Year FY26: FEC revenue grew 9% year over year to ~$7 billion in incremental revenue, and adjusted operating income grew 17% ($940 million) year over year, with 60 basis points of margin expansion to 7.7% (the highest adjusted operating margin in 4 years). Consolidated overall revenue and adjusted operating income grew 8% year over year, with FEC growth partially offset by a decline at FedEx Freight. - Q4 FY26: Consolidated revenue grew 13% year over year, and adjusted operating income grew 3% year over year, led by FEC. FEC Q4 revenue increased 14% (5 percentage points of which came from fuel-driven surcharges) and adjusted operating income increased 13% ($214 million) year over year. FedEx Freight Q4 adjusted operating income fell $114 million, and adjusted operating margin declined 570 basis points. FEC Q4 volume and yield breakdown: - US domestic volume grew 3% year over year (led by ground commercial and home delivery; ground economy volume declined ~5%); FEC package yield increased 11% year over year, with most incremental profit from base price increases rather than fuel surcharges. - International export package volumes grew 5% year over year (second consecutive quarter of growth), with double-digit revenue growth on Asia-Europe, intra-Asia, and US outbound lanes; international domestic volume declined 9% as part of the deliberate European strategy to prioritize higher-yield cross-border volume. - Average daily international export freight pounds grew 12% year over year, driven by the Tricolor strategy.

Risks & headwinds

- Forward-looking results are subject to inherent uncertainties, including changes in global trade policy, geopolitical unrest (such as ongoing volatility in the Middle East), and macroeconomic conditions that could impact shipment demand and supply chain costs. - Fuel price volatility creates revenue and expense volatility, though FedEx's weekly-reset fuel surcharge program is designed to offset most profit impacts; elevated fuel prices did create a minor (~20 basis point) headwind to Q4 FY26 margins. - Stranded intercompany costs previously allocated to FedEx Freight will remain partially through CY2026, with full mitigation expected by the end of CY2027. - Returning the full MD-11 fleet to service is dependent on continued regulatory and OEM coordination, with any delays potentially creating near-term network capacity constraints heading into peak season. - Intense competition in key segments, including SMB logistics and e-commerce fulfillment, could pressure market share or pricing if value proposition differentiation is not maintained.

Analyst Q&A

• Q: What is driving the expected acceleration of profit growth in the 7-month June-December transition period relative to Q4 FY26? /

  A: Two key factors drive the faster growth outlook. First, the large variable compensation headwind that hit Q4 FY26 largely dissipates, leaving only a $100 million incremental headwind for the full transition period. Second, the shift to calendar reporting means Q4 (the fourth calendar quarter) will be FedEx's strongest seasonal quarter, aligned with historical peak holiday profitability. The underlying momentum of the core premium B2B business remains strong, which is reflected in the 19% projected profit growth and 20% EPS growth for the transition period.

• Q: How much FEC margin improvement is expected in CY2026, and when will remaining FedEx Freight stranded costs be fully eliminated? /

  A: Management confirms that margins will improve year over year in both full CY2026 and the June-December transition period, with faster margin improvement in the transition period due to the variable comp headwind being concentrated in the first 5 months of CY2026. Of the original $600 million in stranded costs, $250 million was already transferred directly to FedEx Freight at spin-off. $100 million of the remaining $350 million will be eliminated in CY2026, with full mitigation of all remaining stranded costs expected by the end of CY2027.

• Q: What is driving B2B growth momentum, and how much is coming from AI/data center buildout versus broader macro trends? /

  A: B2B growth is the result of multi-year strategic repivoting to focus on premium core verticals, and B2B was the strongest segment of FY26. Growth was broad-based across all four key verticals (healthcare, automotive, aerospace, and AI/data centers). AI/data center buildout is contributing to momentum, particularly in APAC, but growth was evenly distributed across verticals, with some additional mild support from broad inventory restocking across the economy.

• Q: How is FedEx positioned to compete with Amazon in the growing SMB logistics market? /

  A: SMB is one of FedEx's strongest segments, with double-digit growth and even higher customer retention than the overall corporate average, driven by long-term customer relationships, a mix of seamless digital tools and in-person support, and a best-in-class value proposition. FedEx's core focus on B2B, global end-to-end network, superior visibility and delivery reliability create sustainable differentiation. Management notes aligned incentives: when SMB customers grow profitably, FedEx grows profitably, which supports long-term loyalty.

• Q: What is the current state of network utilization, and how is competition evolving for large contracts that were won during past industry disruption? /

  A: US network utilization remains very high; the deliberate decline in low-yield Ground Economy volume has not reduced overall volume, which continues to grow, allowing for ongoing network optimization. In Europe, the deliberate decline in low-yield international domestic volume is paired with 12 consecutive quarters of cross-border share gain, improving overall network profitability. Overall contract renewal rates remain in the mid-90% range, as customers value FedEx's superior service and reliability, and contracts renew on a staggered schedule rather than all at once.