FedEx expects CY '26 adjusted EPS of $18-$18.60 and about $4B in adjusted free cash flow as portfolio reshaping advances

• "We are serving our customers well, driving significant free cash flow and sustaining momentum toward our 2029 financial commitments." (President, CEO & Director Rajesh Subramaniam)
• "On June 1, we successfully spun off FedEx Freight." (President, CEO & Director Subramaniam) "Earlier this month, we closed the sale of FedEx Supply Chain to CMA CGM Group." (President, CEO & Director Subramaniam) "And we are nearing completion of the InPost transaction." (President, CEO & Director Subramaniam)
• "Since June, we have repurchased $2 billion worth of FedEx stock." (President, CEO & Director Subramaniam) "Our June through September repurchases were greater than our original plan." (President, CEO & Director Subramaniam)
• "We grew revenue across key B2B verticals and premium B2C, which supported double-digit growth in consolidated adjusted operating income." (President, CEO & Director Subramaniam)
• "Revenue was up 12%, which includes a 4 percentage point boost from fuel price-driven surcharge revenue." (Executive VP & Chief Customer Officer Brie Carere) "We were particularly encouraged by the strength from our B2B customers... which supported 28% year-over-year growth in International freight revenue." (Executive VP & Chief Customer Officer Carere)
• "We now have nearly 65% of eligible volume flowing through about 630 Network 2.0 optimized stations." (President, CEO & Director Subramaniam) "Additionally, we have closed more than 260 stations." (President, CEO & Director Subramaniam)
• "On a consolidated basis in Q3, we delivered $3.74 in adjusted earnings per share, up 28% year-over-year." (Enterprise VP of Finance, Interim CFO & Interim Chief Accounting Officer Claude Russ)

Outlook

• "Based on our performance over the 4-month transition period and increased visibility into the remainder of the calendar year, we are raising and tightening our CY '26 outlook to $18 to $18.60." (President, CEO & Director Subramaniam)
• "Additionally, we expect to generate approximately $4 billion in adjusted free cash flow this calendar year." (President, CEO & Director Subramaniam)
• "We now expect 12% full year revenue growth, including approximately 4 percentage points for fuel price-driven surcharge revenue." (Executive VP & Chief Customer Officer Carere)
• "Our embedded Q4 adjusted EPS range is $6.3 to $6.63." (Interim CFO Russ) "While we expect consolidated adjusted operating income to be up year-over-year, we anticipate several transitory headwinds that will pressure our results." (Interim CFO Russ)

Financial Results

• "Consolidated adjusted operating income increased $164 million or 16% for Q3." (Interim CFO Russ) "We delivered $3.74 in adjusted earnings per share, up 28% year-over-year." (Interim CFO Russ)
• "U.S. Domestic delivered higher Q3 adjusted operating income year-over-year, up $67 million or 7%." (Interim CFO Russ) "Adjusted operating margin declined 20 basis points." (Interim CFO Russ)
• "We delivered $101 million year-over-year increase in adjusted operating income, up 52% year-over-year, with 80 basis points of margin expansion." (Interim CFO Russ)
• "We continue to expect $3.9 billion of CapEx for CY '26, of which 90% is maintenance or efficiency related." (Interim CFO Russ) "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." (Interim CFO Russ)

Q&A

• Richa Talwar, Deutsche Bank AG: asked how much of Q3 yield was fuel vs. core and pressed on domestic margin headwinds and how 2027 margin improvement could develop; Executive VP & Chief Customer Officer Carere: "When you look at the international export yield increase... About half of that was fuel." (Chief Customer Officer Carere) Interim CFO Russ: "Those will accelerate into Q4." (Interim CFO Russ)
• Brian Ossenbeck, JPMorgan: asked about monetizing the retained FedEx Freight stake and leverage/buyback funding; President, CEO & Director Subramaniam: "we are focused significantly on our free cash flow" (President, CEO & Director Subramaniam) Interim CFO Russ: "to preserve the tax-efficient status of the separation, we're required to monetize the stake within 24 months of the spin date." (Interim CFO Russ)
• Scott Group, Wolfe Research: questioned why pilot and purchased transportation costs are “transitory” and asked about closing International margin gaps; Interim CFO Russ: "we believe that we have levers to minimize that over time in CY '27." (Interim CFO Russ) President, CEO & Director Subramaniam: "We are well positioned to achieve our committed target of 8% operating margin in CY '29." (President, CEO & Director Subramaniam)
• Ken Hoexter, BofA Securities: asked about stranded costs and Network 2.0 ramp; Interim CFO Russ: "we started the year with the $350 million starting point... confident we're going to end this year at that $250 million." (Interim CFO Russ)
• Christian Wetherbee, Wells Fargo: asked for early 2027 bridge elements and volume; Interim CFO Russ: "we'll still have the pilot contract in the first half of CY '27." (Interim CFO Russ) Chief Customer Officer Carere: "we are committed to our 4% growth beyond CY '26" (Chief Customer Officer Carere)
• Ariel Rosa, Citigroup: asked about peak demand and customer tone; Chief Customer Officer Carere: "they are forecasting about a 2% average daily volume growth for peak" (Chief Customer Officer Carere) CEO Subramaniam: "we have seen moderate volume growth, we expect a strong service peak and a strong profit peak." (CEO Subramaniam)
• David Vernon, Bernstein: asked if FedEx is where it wants to be on Network 2.0 conversion and the “final 35%”; CEO Subramaniam: "we are excited to see how that plays out." (CEO Subramaniam) "In the next phase, we will tackle after peak Los Angeles, Charlotte and in Oklahoma City." (CEO Subramaniam)

Sentiment Analysis

• Slightly negative analyst tone, centered on durability of margins and “transitory” cost explanations, with repeated probing on domestic margin trajectory and International profitability (e.g., Scott Group asked why key headwinds should be viewed as temporary).
• Slightly positive management tone, emphasizing confidence and optionality, while acknowledging near-term pressures (e.g., "we anticipate several transitory headwinds" (Interim CFO Russ) and "we have levers to pull" (President, CEO & Director Subramaniam)).
• Versus the prior quarter, management language shifted from managing discrete disruptions (prior-quarter MD-11 grounding discussion) to emphasizing portfolio reshaping actions and tighter calendar-year outlook.

Quarter-over-Quarter Comparison

• Current call highlighted completed and pending portfolio actions (Freight spin, Supply Chain sale, InPost nearing completion), while the prior call emphasized preparations for the Freight spin and operational disruption from "the unexpected grounding of our MD-11 fleet." (President, CEO & Director Subramaniam; prior transcript)
• Guidance framing moved from the prior quarter’s fiscal-year range "$17.80 to $19" (Executive VP & CFO John Dietrich; prior transcript) to the current calendar-year range "$18 to $18.60." (President, CEO & Director Subramaniam)
• Network 2.0 progress messaging accelerated from "about 24% of our eligible average daily volume" and "closed more than 150 facilities" (President, CEO & Director Subramaniam; prior transcript) to "nearly 65% of eligible volume" and "closed more than 260 stations." (President, CEO & Director Subramaniam)
• Analyst focus rotated from MD-11-related headwinds and Freight spin costs (prior call) toward purchased transportation inflation, Q4 headwinds, and the timing of 2027 margin inflection (current call).

Risks and Concerns

• "With rapidly evolving global trade policies and geopolitical developments, customers require a trusted partner to help them navigate changing requirements." (Executive VP & Chief Customer Officer Carere)
• "The unique pressures in U.S. Domestic purchased transportation rates are largely tied to the broader tightening in the labor market for truck drivers from recent regulatory changes." (Interim CFO Russ)
• "we anticipate several transitory headwinds" including "$130 million tied to higher over-the-road line-haul rates" and "$80 million in aircraft maintenance expense" in Q4. (Interim CFO Russ)

Final Takeaway

Management emphasized a calendar-year reset with a tightened CY 2026 adjusted EPS outlook of $18-$18.60 and approximately $4 billion in adjusted free cash flow, alongside major portfolio changes (Freight spin, Supply Chain sale, InPost nearing completion) and accelerated Network 2.0 rollout. In Q&A, analysts repeatedly tested the durability of domestic margins under purchased transportation inflation and pilot/maintenance costs, while management pointed to “transitory” Q4 headwinds, levers for 2027, and an International strategy centered on Europe cost reduction, mix improvement, and targeted vertical growth.

Read the full Earnings Call Transcript

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