FedEx Corporation (FDX) on Q2 2021 Results - Earnings Call Transcript

Operator: Good day, everyone, and welcome to the FedEx Corporation Second Quarter Fiscal Year 2021 Earnings Conference Call. Today’s call is being recorded. Mickey Foster: Good afternoon, and welcome to FedEx Corporation’s second quarter earnings conference call. The second quarter Form 10-Q, earnings release and stat book are on our website at fedex.com. This call is being streamed from our website where the replay will be available for about one year. Joining us on the call today are members of the media. During our question-and-answer session, callers will be limited to one question in order to allow us to accommodate all those who would like to participate. I want to remind all listeners that FedEx Corporation desires to take advantage of the Safe Harbor provisions of the Private Securities Litigation Reform Act. Certain statements in this conference call, such as projections regarding future performance may be considered forward-looking statements within the meaning of the Act. Such forward-looking statements are subject to risks, uncertainties and other factors, which 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. Please refer to the Investor Relations portion of our website at fedex.com for a reconciliation of the non-GAAP financial measures discussed on this call to the most directly comparable GAAP measures. Joining us on the call today are Fred Smith, Chairman and CEO; Raj Subramaniam, President and COO; Mike Lenz, Executive Vice President and CFO; Mark Allen, Executive VP, General Counsel and Secretary; Rob Carter, Executive VP, FedEx Information Services and CIO; Brie Carere, Executive Vice President, Chief Marketing and Communications Officer; Don Colleran, President and CEO of FedEx Express; Henry Maier, President and CEO of FedEx Ground; and John Smith, President and CEO of FedEx Freight. And now, Fred Smith will share his views on the quarter. Fred Smith: Thank you, Mickey. Let me make one administrative comment. Due to the COVID-19 situation, we have four members of our SMC spatially distanced in the one room and then five members of the SMC are participating by Zoom with us. So, we may be a little clunky here and in off for the answers, but that’s the reason. Let me first thank our FedEx team, nearly 600,000 strong. These team members have continued to keep the world moving amid the pandemic, transporting medicines, protective gear and all the things our customers need for daily life and all of our B2B customers need to run their industries. And now, our team is acting on months of rigorous planning to transport COVID-19 vaccines safely and on time. We have no higher priority as a company. Brie Carere : Thank you, Fred, and good afternoon, everyone. With the coronavirus and its third surge in many countries, the near-term economic outlook remains unclear. In the U.S,. goods spending is above pre-pandemic levels, powered by gains in e-commerce. We’re also seeing growth beyond the consumer as drivers of business activity are increasingly in place. Inventory restocking and a strong recovery in capital goods spending are supporting industrial production. Positive developments on the vaccine front should strengthen the appetite for investment. However, the service sector does remain challenged and faces short-term uncertainty against the latest virus surge. When the health emergency ends and pent-up services demand is released, we should see a long growth runway. International growth rebounded in the third quarter of calendar year 2020 with the goods sector outperforming services. Global industrial production and merchandise trade volumes are closed with full pre-COVID recovery. Sentiment among manufacturing firms is solid, while trade growth is becoming more broadly based around the world. China’s economy has surpassed pre-COVID levels and is leading a strong recovery in East Asia. In contrast, however, Europe has been slower to recover and faces short-term headwinds from virus containment. While uncertainty remains high, vaccine prospects are increasing confidence in the medium-term outlook. As I discussed last quarter, the acceleration of e-commerce has had a profound impact on our industry. This holiday shipping season has certainly proved that. The pandemic has accelerated the growth of e-commerce volumes. In the first nine months of 2020, U.S. e-commerce sales grew 33% year-over-year, while traditional retail sales, excluding auto, gas, food service and goods services grew a little more than 1% year-over-year. E-commerce package volumes are expected to more than triple to 111 million packages per day by 2026, up from 35 million in 2019. Raj Subramaniam : Thank you, Brie, and good afternoon, everybody. Let me start by echoing Fred’s sentiments in thanking our global team members, especially those on the front line, who are working diligently to keep the world in motion during this truly unprecedented time. We are in the midst of an extraordinary peak season with shipathon as we handle record-breaking volumes and deliver strong service for our customers. While our regular peak season falls in November and December, our preparations this year were months in the making. In many ways, we have been operating at peak like levels since March due to service and e-commerce volume. We planned meticulously throughout this year, including collaborating with our customers on innovative solutions, enhancing capacity through new and repurpose facilities and leveraging the flexibility of our network to ensure we are well-positioned to deliver during our busiest holiday shipping season to date. As we handle these record volumes, we’re also delivering the first wave of COVID-19 vaccine shipments here in the U.S. In fact, on December the 14th at 5:53 am Eastern, the FedEx Express courier made the first U.S. vaccine delivery to Boston Medical Center in Boston, Massachusetts. Our team stands ready to transport additional vaccine shipments internationally as they become available. This effort is among the most important work in the history of our Company. And we are honored and proud to be a part of effort to help end this pandemic. And as Fred highlighted, our unparalleled Express network was built for time-definite shipments such as these vaccines. The scale of the FedEx network is massive comprised of 680 aircraft, 200,000 vehicles and most importantly our nearly 600,000 dedicated team members around the world. The power of our network is such that FedEx can pick up a shipment in most any one part of the world and deliver to most any other part of the world in a matter of a couple of days. And the distinction between our networks means that each will have the dedicated resources they need to deliver quickly and safely. And it is precisely this part that will be critical in delivering our very important mission at hand, the mission to distribute COVID-19 vaccines. Simply put, a global health crisis of this scale requires a network of our scale to address. This is who we are and what we do. Mike Lenz: Thank you, Raj, and good afternoon, everyone. Before I move into the financials, I’d like to highlight a few points as the new voice on the call. First, I’d like to recognize the legacy of Alan Graf in building the world-class team I now lead and thank him for his leadership and guidance along the way. The values and standards he instilled are an exceptional foundation for me to build upon in the years ahead. Next, I have appreciated the opportunity to meet with many of you on the call today, over the past few years and hear your perspectives. I look forward to continuing that important dialogue and sharing what’s ahead for FedEx, and hopefully with a post-COVID environment becoming more visible, the opportunities to connect will expand in the months ahead. Finally, I must say how inspiring it has been to see team FedEx in action from my new vantage point. From the executives on this call to the front line team members working tirelessly, as we speak to deliver in this unprecedented environment, it reinforces what we have said before that the strategies we have in place are future-ready and make me truly excited for what lies ahead. Turning to the results. I’m very pleased with our second quarter performance. Second quarter adjusted operating income increased 121% year-over-year, primarily due to international priority volume growth of 32%, continued strong demand for U.S. residential delivery, pricing initiatives, operating margin improvements across all our transportation segments and a $70 million benefit from a reduction in aviation excise taxes provided by the CARES Act. These factors were partially offset by higher costs driven by the package volume surge and expanded service offerings at FedEx Ground, an approximate $215 million year-over-year increase in variable compensation expense, and an approximate $50 million in COVID-19-related costs to ensure the safety of team members and customers. These COVID-19-related costs that we have quantified are limited to increased operating expenses related to personal protective equipment, medical and safety supplies and additional security and cleaning services. And they do not include costs of network contingencies, including additional personnel in place to support our operations through the COVID pandemic. For the quarter, all three of our transportation segments posted strong results. Driven by the strong global volume growth Express revenues increased $1.3 billion. Coupled with solid operational execution, Express generated an adjusted operating margin of 9.1%, up more than 500 basis points, and a record second quarter adjusted operating profit of $943 million. The Ground segment operating margin improved 110 basis points to 7.5% as our strategies to capitalize on the rapid growth of e-commerce continued to advance. The Freight segment earned a stellar 13% operating margin, the second -- the best second quarter margin in 15 years, by focusing on revenue quality and aligning cost to volumes. We incurred a pre-tax noncash mark to market net loss of $52 million related to amendments to the TNT Express Netherlands Pension Plan. Benefits will be frozen and affected employees will begin earning pension benefits under a separate multiemployer defined contribution plan. Our effective tax rate was 12.8% for the second quarter compared to 2.1% in the prior year period. This year’s tax rate was favorably impacted by a tax benefit of $191 million, primarily attributable to favorable depreciation guidance issued by the IRS during the quarter. That compares to the prior year period, which included a tax benefit of $133 million on substantially lower earnings. We ended the quarter with $8.3 billion in cash and equivalents and with $3.5 billion available under our credit facilities. Looking forward, we are not providing a forecast of expected earnings per share for the remainder of fiscal 2021. While current business demand continued to improve in the second quarter, the current rise in COVID-19 cases globally adds significant uncertainty to demand forecasts, as well as operating costs and clouds our ability to forecast full year earnings. However, based on the current trends in our business, we anticipate increased demand to result in higher year-over-year revenue and operating income at FedEx Ground and FedEx Express for the remainder of fiscal 2021. In addition, yield management and improved productivity is anticipated to contribute to revenue and operating income growth at FedEx Freight in FY21. If our current trends continue, we expect higher variable compensation accruals and increased labor costs to be incurred during the remainder of fiscal 2021. In addition, we expect a higher effective income tax rate for the second half of the year versus the first half. During the third quarter, we also expect to see headwinds from aircraft maintenance costs and the end of benefits from the CARES Act. In addition, the third quarter will have one fewer operating weekday versus last year. We incurred $48 million of TNT integration expenses in the second quarter, down from $64 million in the prior year period. We expect the aggregate integration program expense to be $1.7 billion through the completion of the physical network integration of TNT Express into FedEx Express in early calendar 2022. As we approach the completion of the physical network integration in early ‘22, we are evaluating opportunities and pursuing initiatives in addition to the integration to further transform and optimize the FedEx Express international business, particularly in Europe. The cost to the ShopRunner acquisition, which Raj highlighted earlier, will not be material and will be funded with existing cash balances. We expect to complete the transaction this month. We continue to expect our FY21 capital expenditures will total approximately $5.1 billion, which is $800 million lower than last year’s capital spending. While we won’t finalize our FY22 capital spending plan until our fourth quarter, we expect that our FY22 capital spending will increase versus this year. In FY22, we plan to make additional investments in our FedEx Ground network driven by the surge in e-commerce demand. Our CapEx focus remains on strategic investments that will reduce our cost structure, improve our efficiency and increase our capacity to profitably meet market rose demands. I’ll close by reiterating our excitement and confidence in our future as we continue to benefit from our strong tradition in the U.S. and international package and freight markets, yield improvement opportunities and cost management initiatives. And with that, we can turn to the question-and-answer session. Operator: Thank you. We’ll go ahead and take our first question from David Ross with Stifel. Please go ahead. David Ross: Yes. Thank you very much. Henry, probably a question for you on the Ground side. Insane growth there, and I know that there’s a lot of investments going on to make sure all the packages get delivered. Right now, it’s only showing about a 10% incremental margin, and everybody wants to get back closer to mid-teens. How should we think about everything going on at Ground, the investments weighing on the margin and then the consolidation of SmartPost into Ground, helping the margin as we move over the next couple of years? Henry Maier: Thanks, David. Well, as Mike said, margins in the second quarter improved to 110 basis points and operating income improved 61% year-over-year. Given the very unique environment leading up to peak, our resource ramp-up looked very different than it had in prior years. Peak preparation expenses were much higher and occurred much earlier than in the past as we anticipated the potential impacts of COVID on resource availability and the timing of customer volume coming into the network. We are and have been -- we have been and continue to be extremely aggressive on the hiring of new package handlers. In fact, we are still onboarding record numbers of package handlers as we speak. We recognize new challenges for service providers and adding drivers and vehicles. So, we pulled the peak settlement rates forward by a number of weeks to better enable their businesses to be ready for peak. All of these things drove higher than normal operating expenses associated with peak preparation than we normally incur in Q2. Merits and accruals for variable comp also affected year-over-year comparables. Investments in preparation for this year’s peak included capacity additions in the shape of six new regional sort facilities, four new automated stations, eight new or expanded large package facilities and expanding more than 50 facilities with additional automation and material handling equipment. A number of these facilities came on line much later this year than it is acceptable than in years past due to permitting and construction delays due to COVID-related shutdowns last spring. In fact, if you think about a regional sort facility, which employs about 500 handlers, the last one came on line the weekend before Thanksgiving, which would have been four to six weeks later than would have been acceptable in any other year. As we stated in the second quarter, we expanded our coverage of seven-day residential service from 60% to 95% of the U.S. population. This expansion required the addition of sorts and automated package processing facilities, as well as the addition of pre-loads that formerly didn’t exist on Sunday in roughly 50 stations. Finally, assuming no significant change in business conditions as we see them today, we expect margin improvement to continue year-over-year in each of the next two quarters. Thanks for your question. Operator: And we will go ahead and take our next question from Brandon Oglenski with Barclays. Please go ahead. Brandon Oglenski: Hey. Good afternoon, everyone, and thanks for taking my question. Maybe this one is for Raj or Brie. Can you guys just dig a little bit deeper into the ShopRunner acquisition? Because I think in the prepared comments and also the release tonight, you talked about how you really want to integrate better with retailers and customers on an end-to-end basis. So, is this more about the current user base of ShopRunner or is this offering incentives to the retailers there, or is this even more a play on the technology of the company? Thank you. Raj Subramaniam: Thank you, Brandon. Let me start, then I’ll turn it over to Brie. Firstly, just to put it in perspective here, the technology and the talent are very critical components of this, and the fact that the technology platform that connects brands and merchants to consumers is very important. The important thing also is the combination of those capabilities with FedEx’s capability is our physical and digital infrastructure. And we have -- ShopRunner being an established e-commerce platform that directly connects online shoppers with brands and merchants that they love and trust offering member benefits and the seamless checkout, and you combine that together with our goal to create a more open collaborative e-commerce ecosystem that benefits merchants and shoppers. So, we think it’s a great marriage. We think this is going to be very successful as we marry the technology and talent from the ShopRunner, along with our capabilities. I don’t know Brie, you want to add a couple of points there. Brie Carere: Sure. Thanks Raj. We’re very excited about the ShopRunner acquisition and having Sam and his team join us. We have some interesting product capabilities that I’m not going to be able to share all the details at this point. But, I think, the three things from a go-to-market and a value driver that we see in the very near-term as we’re looking at the ShopRunner acquisition, the first is that we have the logistics capabilities to create greater certainty with the existing ShopRunner offering to consumers. We can work with their brands to make the reality even more efficient on their current offering. Second, with their order catalog and their data visibility into these brands, we can see us stream earlier. This is an incredible advantage from a logistics optimization. Third, when you think about the post-purchase experience, and you can take ShopRunner’s order catalog without post-purchase visibility into transit, we think that we will have a best-in-class post-purchase consumer experience. So, those are the first three things out of the gate, but we’ve got a lot more to come and we’re super excited. Great question. Operator: And we’ll go ahead and take our next question from Bascome Majors with Susquehanna. Please go ahead. Bascome Majors: Yes. Thanks for taking my questions. Looking forward, there are so many cross currents driving really good results in parts of your businesses and challenges and others right now. I was hoping you could talk about some of the FedEx verticals, be they like customer or type of business or product that are really still quite a bit below the pre-COVID baseline and whether or not you’re excited about the recovery in that space, as we dig deeper into next year and the year beyond? Thank you. Fred Smith: Well, let me start by saying that we are excited about our performance across all our segments of the business this quarter. I mean, it’s just actually very excited to see the progress we’re making here. If we look at -- obviously, the fastest-growing segment is e-commerce. And as we improve the -- continue to improve density and other metrics in our systems and the performance is going to continue to even get better. But to your point, the industrial production and the business segment is just recovering and that there’s upside opportunity here, inventory, the sales ratio is at an all-time low for retail, and it is about six-year low for manufacturing. So as they come back and then the restocking happens over the next few months, that should be an upside to the core business as well. So, we are excited about the progress we have made in the e-commerce space, growing very fast in that space, and the investment that we made is actually filling right into it. At the same time on the international segment, we’re seeing -- we are -- clearly capacity that we provide today is at premium. We expect that advantage to continue. And as businesses continue to recover and the B2B segment comes back, that should be on top of our current trends. So, that’s what we expect. And COVID-19 is choppy in the immediate short term, but the medium term, we’re optimistic about where these trends are going. I don’t know, Brie, if you want to add to that? Brie Carere: No, I think, you’ve covered. I think, the only other detail that I would add is we’re not quite there yet from a recovery from a B2B perspective. We have seen strong momentum and some early, early signs coming out of Europe. That’s obviously where it’s most important to us from a business mix perspective. And my hat’s off to the European team. They have done some incredible work this year, while their B2B business has not come back. So, that is additive to where we’re at right now for sure. Operator: And we’ll go ahead and take our next question from Scott Schneeberger with Oppenheimer. Please go ahead. Scott Schneeberger: It’s a great segue to my question, I heard you stating on last call -- last quarter call that you had B2B growth value in August. I was just curious to hear how it has trended since then. And you said, Brie, in Europe -- just if you could differentiate between Europe and U.S. some trends you’re seeing and what you expect? Raj Subramaniam: Okay. I’ll start, and we can -- Don and Brie can help me. As we look at the United States, yes, the B2B started to go into positive direction at the beginning of Q2 and it strengthened over the quarter. And as you said, the industrial production has started to lap the pandemic crisis here and then coming back on the other side. Across the world, China is leading the way in terms of economic recovery and manufacturing, and Europe is lagging behind. So, in Europe, we’ve seen growth, but it’s finally driven by B2C. And the B2B is still in the recovering but below pre-pandemic levels. So, Don, do you want to comment on the international segments? Don Colleran: No, Raj, I think that’s helpful and not a lot to add other than the fact that certainly the optimism comes around the continuing rollout of the vaccines on a global basis, as economies and countries and companies begin to recover and open back up, that’s when we expect to see B2B volume recover. I think, Brie mentioned and you expanded, Raj, as well, we’re beginning to see some signs of life in our European business on the B2B side as well. Only get to the data points, but it certainly introduces some optimism about the revenue growth right now is driven by B2C and B2B continues to improve on a sequential basis certainly that’s additive to the European story. Raj Subramaniam: Okay. Thank you, Don. Brie anything else? Brie Carere: No, I think, you’ve covered it. Raj Subramaniam: Okay. Thank you. Operator: And we’ll go ahead and take our next question from Amit Mehrotra with Deutsche Bank. Please go ahead. Amit Mehrotra: Thanks. Good evening. Mike, you talked about showing year-on-year margin improvement in the second half on a year-over-year basis. To be fair, the bar’s a little bit low on that. And I was just hoping you could give us a little bit of color around that. Do you think the year-on-year margin expansion accelerates? It was great to see you in the fiscal second quarter for the first time in a long time. But, do you think, as some of the costs subside that were specific to the fiscal second quarter that we might be able to see some acceleration in that year-on-year margin expansion? And just the broader question to Mike, if you could address, the problem for the last several years obviously has been the growth in Ground has been fantastic, but the margins have been impacted negatively as a result of that growth. With pricing initiatives, the yield that you guys are showing, which is incredibly impressive, can we say now that the bottom is it for Ground margins and subsequent quarters should see gains on the back of what we’ve been achieved the last several quarters? Mike Lenz: Okay. There’s a lot of questions in there. Let me try and just say, look, we certainly highlighted that we are incurring incremental costs and contingencies related to the pandemic and that continues to create uncertainty in our near-term forecasts. But as Henry outlined, we’re very confident about the trajectory of the Ground business and the initiatives we have in place. Just to elaborate a little further, I mentioned that we’re -- we anticipate spending more on capital expenditures in our Ground business from next year. The increase in facilities which -- that would be both, new automated facilities, as well as expansion of existing ones, that’s not the only lever we have and are working on to improve Ground margins and profitability. We also will continue to deploy technology to further enhance that asset productivity, as well as deeper collaboration with our customers to optimize when, where, and how we receive the shipments. So, I’m not going to put a point forecast on things, but we’re trying to paint the picture here for you of all the initiatives and things that are coming together that are going to drive that going forward. Operator: And we will go ahead and take our next question from Tom Wadewitz with UBS. Please go ahead. Tom Wadewitz: Yes. Good afternoon. I wanted to see - your Express performance has been very, very impressive. You’re doing a great job capturing the opportunity I think in a variety of measures. One in particular, the strength in national air freight rate, I was just wondering if you could give some kind of help us to think about the magnitude of that and how should we think about that as a potential headwind in the future? Is that something to be concerned about? If you go to back half of -- or if you go into fiscal ‘22 that you might have to give back on that benefit from really high international air freight rates? Fred Smith: Don, you and Raj want to talk about that or… Raj Subramaniam: Yes. Let me kick it off and then Don can answer. I think, the point about when the capacity, supply and demand for us to balance is of course, we have to look at that. We feel that as the demand comes back, the capacity will be in shortfall for quite some time, and our FedEx capacity will be at significant premium. And, as Brie pointed out in our remarks there is quite a bit of runway ahead of us in this regard. So, let me turn it over to Don for his comments. Don Colleran: Thank you, Raj, and thanks for the question. So, let me frame it from a market perspective, and I appreciate the comments on the Express’ team performance, obviously really proud of what we delivered past the last couple of quarters. When we look at the air freight market, obviously the derivative of supply demand and conventional wisdom and market forecast would suggest that we don’t get back to pre-COVID capacity in the marketplace for somewhere in the range of 18 to 24 months. So, if you believe that to be true and we do, I think there is continued reason to be optimistic about the supply and demand situation as it relates to our business going forward. As Raj mentioned, as the vaccines continue to roll out around the globe and economies begin to recover, they’ll recover, I believe at a faster pace than the capacity from the factors in the market. So, my sense is again, we don’t go back to pre-COVID levels in commercial capacity in the marketplace for 18 to 24 months and the economies hopefully begin to recover prior to that, it creates an opportunity from pricing environment. Brie, I am not sure if you want to add to that? Brie Carere: I think you’ve covered it, Don. Operator: We’ll go ahead and take our next question from Jack Atkins with Stephens. Please go ahead. Jack Atkins: Hey. Good evening. Thanks for taking my question. I guess, this one is for Mike. The question is on cash flows, if you don’t mind. There’s been a significant improvement in operating cash flow through the first six months of this year on year-over-year basis. It looks like a good portion of that is from a lower payables. Is that related to the payroll tax accrual holiday related to CARES Act, first of all? And then, I guess more broadly, with an increased focus on CapEx discipline now, do you anticipate being sustainably free cash flow positive moving forward, barring something unforeseen from a macro perspective? Thank you. Mike Lenz: Jack, the answer to your first question is, two big drivers of that. We made a $1 billion contribution to our pension plan in the first half of last year. And then, you are correct, the deferral of the payroll taxes into the CARES Act shows up there. At this point, the benefit from that we’ve deferred just north of $600 million of payroll taxes under the CARES Act. And those will pay back in calendar ‘21 and ‘22. Look, it remains we are fully focused on improving returns and free cash flow. But I don’t want to get into giving you a forecast at this stage of the game. But, we’re definitely prioritizing that, as well as improving our capital efficiency. Operator: And we’ll go ahead and take our next question from Jordan Alliger with Goldman Sachs. Please go ahead. Jordan Alliger: Yes. Hi. I was wondering if you could put a little longer term color on Ground margin thoughts, and sort of way -- the higher amount of residential packages that is likely to stay in the system, from here, again, some of the things and opportunities you’re doing around the air ground optimization, bringing the postal business in-house, et cetera. Perhaps if you could just -- obviously a good start on the Ground side and just sort of curious how you think about Ground out over the next year or two and where -- directionally where that could go? Henry Maier: Hey Jordan, this is Henry there. As I said, we expect margin improvement each of the next two quarters year-over-year. I think, the important thing here is to think about residential is, you got to focus on the transformational initiatives that have been accomplished and the ones that are yet to come. We talked about 7-day year round 95% of the U.S. population. I’ve spoken on this call before about the great route optimization technology we rolled out and put in the hands of our service providers, the in-sourcing SmartPost volume has allowed us to experience a very real return on these strategic investments. For example, we’ve seen a 22% improvement in stops per hour Q2 year-over-year. The average cost per stop has been reduced by 15% year-over-year. And causing our assets to sweat 7-days a week, once again the in-sourcing of SmartPost has allowed us to reduce our fixed cost per package by 9% year-over-year in the quarter. And we’ve also seen a material reduction in miles per stop. These are all of the input cost trends you need to see to win in e-commerce. So, I would tell you that from where we sit, FedEx Ground today, we couldn’t be more positive about the future. You want to take the LMO more question Brie? Brie Carere: From an LMO perspective, obviously we’re excited to turn that back on. I think, I covered the percentage of residential that’s already in the network right now. So that remains an upside opportunity. We have gained share consistently over the last 20 years. And we’re very, very optimistic about the future and opportunities. That’s why I continue to share the growth of e-commerce and those numbers, 111 million packages in the market by 2026. There’s some significant room for growth there. So, we’re really excited about the FedEx Ground outlook. Raj Subramaniam: Can I just add a couple of things here? I mean, as both Henry and Brie said it, the two areas, one is improved density and efficiency. And Henry already gave an evidence of some of those and those -- we expect those trends going forward. And second, this is one, the revenue quality that Brie talked about. So, to look forward, we are optimistic about what Ground can deliver with this increased volume that we get. Operator: And we’ll go ahead and take our next question from Scott Group with Wolfe Research. Please go ahead. Scott Group: So, I want to stick on Ground. Do you think the 7% yields growth sustainable? And maybe since Ground margins aren’t at double digits yet, do you think there’s opportunity to push that Ground yields even further? And then, just with the pricing -- and do you -- I guess directly, do you see the opportunity to get to double-digit margins for a year? Can you get too low-teens margins for a year in Ground? I guess, that’s what everyone’s trying to figure out. Brie Carere: So, we’re going to continue to execute on our revenue quality strategy. We think that there’s been some fundamental shifts in the market. And you saw the beginning of that this quarter with a 20% increase in our SmartPost products and a 10% increase from a yield and the residential business. We believe surcharges will be a part of our pricing strategy moving forward for e-commerce. They are a necessary part. We also are going to continue to work on our product and our customer segment mix. And what do I mean by that? We are leaning into our home delivery product for growth. It is the best value proposition in the market. No one else can do 7-day. And we expect to continue to get a premium. We also expect that that will continue to drive market share from small and medium customers who cannot move to a local operation. And they really do value the national speed advantage that we have. So, yes, I continue to expect a strong, yield performance for the FedEx Ground portfolio. And we’re confident that we have started to change some industry trends this year. Mike Lenz: Scott, my crystal ball doesn’t go out much more than six months. So, I’ll stand by my statement about the next two quarters. I am highly confident of double-digit margins. I don’t know whether I want to get into a debate with anybody on this call about teams, so. Operator: We’ll go ahead and take our next question from Duane Pfennigwerth with Evercore ISI. Please go ahead. Duane Pfennigwerth: Hey. Thanks. Maybe a question for Raj on collaboration. Can you offer any metrics on the degree of collaboration between the segments year-over-year? For example, how much Express volume ran through Ground this quarter versus the year ago period? Raj Subramaniam: Okay. The over -- we have moved over more than 10 million packages from Express to Ground, primarily. These are primarily -- I mean, these are rural and residential packages that because of e-commerce and the ability for us to have a definite system of lower -- the definite system, more than 10 million packages into the Ground system. In addition, FedEx Freight has done a lot of work for FedEx Ground as well. They’ve driven 40 million miles, up 80% year-over-year. There were 1.5 million packages that Freight has delivered -- handled packages, up more than 435%. There are several such numbers, but the collaboration is very active. And we are making sure that we put the right package in the right network and the right cost to serve. Duane Pfennigwerth: Thanks. What inning would say we’re in? Raj Subramaniam: Did you say what inning? Duane Pfennigwerth: Collaboration, what inning? Fred Smith: Raj plays cricket. Raj Subramaniam: There are innings in cricket too. But yes, no, we are just getting started, if that’s what you mean. Operator: And we will go ahead and take our next question from Allison Landry with Credit Suisse. Please go ahead. Allison Landry: Thank you. I just want to see if you could give us a little bit more clarity on the increase in Ground CapEx in fiscal ‘22. I mean, I guess, what’s the magnitude of the uptick in spending? And more importantly, I think, you previously talked about not needing to add incremental major pump capacity, given that the growth over the next several years would likely come in shorter than past, and therefore, you could push volumes out to the second tier and satellite facilities and really start to leverage the investments that you’ve made in the stores. So, is that still the right way to think about it, or what’s sort of a nature of the increase in CapEx? So, just wanted to understand any sort of additional details to sort of get sort of clarification on that. Thank you. Mike Lenz: Hey Allison, it’s Mike. So, I don’t have a specific number to give you on that as we are, as I said, in the midst of formulating our plans and putting it together for FY22. But, unquestionably, the sustainability and acceleration of the e-commerce business that we have seen that everybody has highlighted is here to stay. And Brie spoke of this tremendous shift in the mix of residential business and with not much advanced notice, yet Ground has quickly adapted, adjusted and was able to increase margins. So, that’s a testament to the execution of the team on all fronts, the commercial teams, the operational teams. So, that volume is going to keep coming. So, it’s essential that we do invest in certain assets going forward, but it’s not going to be the same nature and configuration as you might historically have considered it. So, I mentioned, it’s facilities, it’s technology, it’s how we work with customers. But I’ll let Henry elaborate a little bit more on just kind of the nature of the facilities and how that works, so you have a better sense of it. Henry Maier: Yes. Thanks, Mike. Allison, I think, the way you should think about this is we’re going to invest much more heavily on the edge of our business, which is the last mile space. So, if you think about this, our focus is going to be on much smaller automated satellites and stations, regional sortation facilities, which, if you’re not aware, sort about 12,000 to 15,000 packages an hour. They tend to be inbound only so that we can process direct loaded volume from large retailers. They are much less costly to build and operate because what we do is we go in and we modify an existing building. And we are able to get these up much quicker. In fact, the time to get them up and running is measured in months instead of years, like some of the bigger construction projects we’ve had. They’re solely designed for the sortation of regional packages. And I think when you think about regional, you should think about overnight mainly. And one of the great advantages they have is that they can serve as a relief valve for spillover sortation at peak. There is a lot of other levers we can pull here. The ideal situation for us is to be able to load direct van, not have to go through a destination facility. We’re investing heavily in technology tools that will give us the ability to do that. There’s a lot of things we do, particularly this time of year at peak with mobile docs and annexes and the ability to waive dispatch and run dual pre loads in facilities that allow us to dual use facilities when volume is at the level it is now that don’t require us to invest in the traditional brick and mortar. Now, all that being said, we’re always going to have brick and mortar in our business, but many of the transformational initiatives I’ve talked about are intended to give us better real-time information about what’s coming so we can make decisions that reduce our input costs. The main area would be re-handles so that we can bypass the brick and mortar facility altogether and load right to a vehicle that’s going to go deliver those packages in the neighborhood. So, I hope that answers your question. Raj Subramaniam: And Allison, that’s density yet again. You’ve heard us say it numerous times, but that is density and how we manage that yet again. Operator: And we’ll go ahead and take our next question from Brian Ossenbeck with JPMorgan. Please go ahead. Brian Ossenbeck: Yes. Thanks. Good evening. So, another one for you, Henry. Can you just talk about peak season costs, how they came in versus expectation? It sounds like you had to make a few adjustments obviously with everything that’s happened. So, it feels like you’re well suited to handle the rest of peak and the returns after that. And then, maybe you can just give us an update on -- I think last call, you were talking about maybe needing to shift some customers over to the weekend, possibly incentivizing them to change their behavior a little bit. I imagine that’s probably not the case anymore, but if you can give us an update on that too, I’d appreciate it. Henry Maier: Okay. I’ll take the first part, and then, I’ll let Brie take the second. But, let me talk about peak. First of all, we haven’t actually had a conversation about that. And since we’re in the midst of it, let me begin by saying I couldn’t be prouder of the Ground team and what they’ve been able to accomplish this year, just like about everything else in 2020, which has been an extraordinary year. Peak this year has been pretty extraordinary. All the things I talked about in terms of investments, resources, capacity, are all really driving one of the best peak seasons we’ve ever had, in spite of COVID and all the other challenges we’ve had in this business. On average, FedEx Ground is delivering 25% to 30% of the volume a day early, and the average package spends about 2.4 days in the network in terms of transit, which is faster than last year, in spite of the volume and the challenges I outlined. I think, the issues this year on the cost side were timing and a lot of unknowns. I talked about the building -- the facilities came on much later this year because most governments were shut down for two months. So, we couldn’t get permitting that really slowed the time line here. And even though our property and engineering team did a fabulous job in the race to the finish line here to get them up and running, facilities came on a lot later this year than normal. In terms of the resources, particularly in the case of handlers, I would just say two things. When you bring on resources at the rate we’re bringing them on, they are not very efficient. It takes time for these people to be taught their job. And there’s this ramp-up of 2, 3, 4 weeks it takes for a handler to learn their job. And once again, I mean, we’ve got a sizable portion of the handler workforce that is not as productive as they could be. I think, I said on the call at the end of Q1 that our facilities are not designed for social distancing. So, out of an abundance of caution in keeping safety above all in our business, we’ve got a staff and man these buildings in such a way that we can keep our people safe while they’re at work. The unintended outcome of that is, is that we don’t get the desired or engineered throughput through all these buildings we would in the time pre-COVID. So, those are the things that are probably most material to the cost side of this. As I said, also in the earlier question, we pulled peak settlement for our service providers forward because we knew they were going to have challenges with the recruitment of drivers. And we recognized early on that vehicles were in short supply. Once again, automotive manufacturing plants were shut down for two or three months. And new and used vehicles in the market right now are almost impossible to find. That meant that rental vehicles had to be procured much earlier and with commitments that were much longer than normal. And we made adjustments to settlement in those situations to try to defray some of the costs for our service providers. Finally, let me just say one last thing. Our ISPs have done an unbelievable job this year at peak. I’ve lost track for the number of days we’ve had peak package delivery days, peak stop days, et cetera, and they have stepped up every step of the way this year. And I would reinforce again that the ability and flexibility of those small businesses to make decisions on the fly based on local conditions and the data we push to them about what their delivery is going to look like the next day, there’s nothing short of unprecedented and is truly a differentiator in our business. Brie Carere: And to answer the second half of your question, I think, Jill Brannon and her sales team have just done an incredible job leveraging our weekend capacity. The incentive is, you use the weekend or you lose the capacity. And that has worked. Do we have opportunity? Yes, I believe we have incremental opportunity to further improve the productivity and density on the weekend. But again, we have created a peak capacity strategy that does require customers to pulse their volume more equally throughout the week. And our best largest customers are doing just that with us. They’ve been great partners and I think they’ll continue to see us do a good job of out of peak moving forward. Operator: And we’ll go ahead and take our next question from Allison Poliniak with Wells Fargo. Please go ahead. Allison Poliniak: Hey. Good morning. So, just to follow on that question, just you’re going back to that and working with your retailers to better balance the peak. I guess, one, was there a noticeable, I would say, pull forward about some of those volumes in November that was noticeable to you? And it sounds like those volumes are -- you’re seeing some level of operational balance in December in terms of the peak. Any incremental color you can give there? Brie Carere: Sure. We really were hoping to change shopping behavior, and we really didn’t see that to be completely honest. We have seen, as a result, I think there’s far more awareness from consumers of the unprecedented year we’re having. What we did see is the ground team and the sales team did such a great job educating the merchant and the customer that we saw a lot better planning. And as a result, we saw volume, and we are seeing volume earlier in the Express network. So, it was successful and that we were able to move some of the higher value e-commerce into the Express network. And we have been successful in smoothing day of week within Henry’s network. We were not successful in getting all consumers to shop before the cyber weekend. So, that remains a goal, let’s just say. Operator: And we’ll go ahead and take our next question from David Vernon with Bernstein. Please go ahead. David Vernon: Hey. Good afternoon. Brie, I wanted to follow up on that topic around sort of collaboration, right? You’re reporting some pretty healthy rate increases on the B2C side, 20% for market, 10% for the residential. How is the discussion going with retailers at this stage? Are they accepting this as take it or leave it, or how are they thinking about your product in the context of pretty significant rate increases. And as you think about the negotiations with them going forward, are they being more willing to participate with you on things like your process, day a week injection, that kind of stuff that will help you kind of build a deeper relationship on the customer side? Brie Carere: I would say, in general, the conversations have gone very well. The largest and most successful retailers in the U.S., they understand how important FedEx Logistics is to -- quite frankly to their growth strategy. And so, I think we’ve had some tremendous success. I do want to be clear on the SmartPost. It was about trading out as well. That’s a big part of the strategy. So, the customers that understand the value we bring, they’ve been great partners, and that’s enabled us to move forward. And for those who don’t value our speed and our differentiated value proposition, as you can see in our growth numbers, there were lots of customers who did value that. So, it’s not a one-size-fits-all. But overall, I would say that the team has done a great job and that come January, we’ve already had a -- we have a full -- Jill’s calendar for January is full as she moves into peak planning for next year, and I think this year has set new precedence for many years to come. Operator: And that does conclude today’s question-and-answer session. I’d like to turn meeting back over to Mr. Foster for any additional or closing remarks. Mickey Foster: Thank you for your participation in FedEx Corporation’s second quarter earnings conference call. Feel free to call anyone on the Investor Relations team if you have additional questions about FedEx. Thank you very much. Bye. Operator: Once again, that does conclude today’s conference. We do appreciate your participation. You may now disconnect your phone lines.
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FedEx Drops 5% as Soft Q1 Outlook and Trade Uncertainty Overshadow Strong Q4

FedEx (NYSE:FDX) shares fell more than 5% intra-day today after the logistics giant issued a weaker-than-expected profit forecast for the current quarter, fueling concerns about global demand and rising trade tensions.

Despite delivering a better-than-anticipated fourth-quarter performance—posting earnings per share of $6.07 on $22.2 billion in revenue, topping analyst estimates—investors focused on the company’s cautious guidance. FedEx projects adjusted Q1 EPS between $3.40 and $4.00, missing Wall Street’s expectation of $4.06.

The company also withheld full-year earnings and revenue guidance, citing a highly uncertain macro environment. CEO Raj Subramaniam described global demand as “volatile” during the earnings call, while executives pointed to rising trade frictions as another headwind. In particular, the decision to end duty-free status for low-cost shipments from China-linked retailers like Shein and Temu has weighed on profitability.

The results from FedEx, often viewed as a bellwether for economic activity, follow growing business caution amid political and trade uncertainty tied to former President Trump’s renewed tough stance on China. Combined with structural cost cuts of $2.2 billion over the past year, FedEx is trying to offset weaker volumes, but near-term visibility remains limited.

Investors appear to be bracing for a rocky start to the new fiscal year, as external pressures continue to cloud the outlook.

FedEx Corporation (NYSE: FDX) Surpasses Earnings Expectations

  • FedEx reported earnings per share (EPS) of $6.07, beating the estimated $5.93, and revenue of $22.2 billion, exceeding the forecast of $21.8 billion.
  • The company achieved its $4 billion cost-cutting target and plans to further reduce costs by $1 billion in the next fiscal year.
  • Despite positive financial results, FedEx's stock fell by about 5% in after-hours trading due to profit guidance for the current quarter slightly below Wall Street's expectations.

FedEx Corporation (NYSE: FDX) is a global leader in transportation, e-commerce, and business services. Known for its overnight shipping service, FedEx operates in over 220 countries and territories. The company competes with major players like UPS and DHL in the logistics industry. On June 24, 2025, FedEx reported impressive financial results, with earnings per share (EPS) of $6.07, surpassing the estimated $5.93. The company also reported revenue of $22.2 billion, exceeding the estimated $21.8 billion.

FedEx's recent financial performance highlights its successful cost-cutting measures. The company achieved its $4 billion cost-cutting target and plans to further reduce costs by $1 billion in the next fiscal year. CEO Raj Subramaniam expressed confidence in the company's transformation initiatives, which focus on integrating networks and reducing costs to create long-term value. Despite these positive results, FedEx's stock fell by about 5% in after-hours trading due to profit guidance for the current quarter that was slightly below Wall Street's expectations.

The company's financial metrics provide insight into its market valuation and financial health. FedEx has a price-to-earnings (P/E) ratio of approximately 14.06, indicating the market's valuation of its earnings. The price-to-sales ratio stands at about 0.63, suggesting that investors are paying 63 cents for every dollar of sales. The enterprise value to sales ratio is around 1.05, reflecting the company's total valuation relative to its sales.

FedEx's operating income increased to $1.79 billion, with an adjusted figure of $2.02 billion, compared to $1.56 billion and $1.87 billion, respectively, in the prior year. The operating margin improved to 8.1%, with an adjusted margin of 9.1%, up from 7.0% and 8.5% in the previous fiscal year. These improvements demonstrate the company's ability to enhance profitability through effective cost management.

Despite the positive financial results, FedEx shares have declined by over 18% year-to-date. The company's debt-to-equity ratio is approximately 1.39, indicating its leverage level. Additionally, FedEx has a current ratio of about 1.24, suggesting its ability to cover short-term liabilities with short-term assets. These metrics provide a comprehensive view of FedEx's financial position and its potential for future growth.

FedEx (NYSE:FDX) Upgraded to "Buy" by Bank of America Securities

  • Bank of America Securities upgraded FedEx (NYSE:FDX) to a "Buy" rating, with a current stock price of $229.23.
  • FedEx is expected to report fourth-quarter revenue of $21.84 billion, with an EPS prediction of $5.87.
  • The stock has shown volatility over the past year, with a high of $313.84 and a low of $194.30.

On June 23, 2025, Bank of America Securities upgraded FedEx (NYSE:FDX) to a "Buy" rating, with the stock priced at $229.23. FedEx is a major player in the logistics and transportation industry, providing services worldwide. The company's competitors include UPS and DHL, making the logistics sector highly competitive.

FedEx is set to release its fourth-quarter financial results soon, which will be crucial for understanding the company's performance. Analysts expect FedEx to report a fourth-quarter revenue of $21.84 billion, slightly down from $22.1 billion in the same quarter last year. Despite this anticipated decline, FedEx has exceeded revenue estimates in the last two quarters, showing resilience in a challenging market.

For earnings per share (EPS), analysts predict $5.87, up from $5.41 in the previous year's fourth quarter. Although FedEx has missed EPS estimates in the last three quarters, it has surpassed them in six of the past ten quarters. This mixed performance makes the upcoming earnings report significant for investors and market strategists.

Currently, FedEx's stock is priced at $229.23, reflecting a positive change of $3.19, or a 1.41% increase. The stock has fluctuated between $223.75 and $229.29 during the day. Over the past year, FedEx has experienced a high of $313.84 and a low of $194.30, indicating volatility in its stock price.

FedEx's market capitalization is approximately $54.92 billion, with a trading volume of 1,621,647 shares. This data highlights the company's significant presence in the market and the interest it generates among investors. The upcoming financial results will be closely watched for any signs of a sustained rebound in FedEx's performance.

FedEx Corporation (NYSE:FDX) Quarterly Earnings Preview

  • Analysts predict an earnings per share (EPS) of $5.94 and projected revenue of approximately $21.84 billion for FedEx's upcoming quarterly earnings.
  • Despite challenges in the Express unit, FedEx's Q4 earnings are expected to rise by 9.8% year over year.
  • The Zacks Consensus Estimate for revenue is slightly lower at $21.7 billion, reflecting a 1.9% decrease from the previous year.

FedEx Corporation, listed as NYSE:FDX, is a global leader in transportation, e-commerce, and business services. The company is set to release its quarterly earnings on June 24, 2025. Analysts predict an earnings per share (EPS) of $5.94, with projected revenue of approximately $21.84 billion. FedEx's performance is closely watched, especially in comparison to competitors like UPS and DHL.

Despite a recent 1.5% downward revision, FedEx's Q4 earnings are expected to rise by 9.8% year over year. This increase is notable given the challenges faced by the Express unit, which is projected to see a 3.2% decline in revenues due to weak demand and low shipping volumes. The company's DRIVE efficiency program aims to mitigate these challenges by reducing salary and operating expenses.

The Zacks Consensus Estimate aligns with Wall Street's EPS prediction of $5.94, while revenue is slightly lower at $21.7 billion, reflecting a 1.9% decrease from the previous year. This downward revision in revenue estimates indicates a reassessment by analysts, which can significantly impact investor sentiment and stock performance.

FedEx's financial metrics provide insight into its market valuation. With a P/E ratio of 13.68, the market values its earnings moderately. The price-to-sales ratio of 0.61 suggests investors pay 61 cents for every dollar of sales. The enterprise value to sales ratio of 1.03 and the enterprise value to operating cash flow ratio of 12.55 highlight the company's valuation relative to its sales and cash flow.

The company's debt-to-equity ratio of 1.39 indicates a balanced use of debt and equity in financing its assets. FedEx's current ratio of 1.24 suggests it has sufficient liquidity to cover short-term liabilities. These financial metrics, along with the anticipated earnings report, will be crucial in determining FedEx's stock performance and investor confidence.

FedEx (NYSE:FDX) COO Sells Shares Amid Mixed Fiscal Q3 2025 Results

  • FedEx COO for US and Canada, Smith John Alan, sold 3,345 shares at $243.55 each, leaving him with 23,347 shares.
  • The company reported earnings of $4.51 per share, missing the Zacks Consensus Estimate but showing a year-over-year improvement.
  • Revenues reached $22.2 billion, surpassing expectations, yet FedEx revised its fiscal 2025 earnings outlook downward due to economic challenges.

On March 27, 2025, Smith John Alan, the Chief Operating Officer for US and Canada at FedEx (NYSE:FDX), sold 3,345 shares of Common Stock at $243.55 each. This transaction leaves him with 23,347 shares. FedEx, a global leader in transportation and logistics, competes with companies like UPS and DHL in delivering packages worldwide.

FedEx recently announced its third-quarter fiscal 2025 results, showing mixed outcomes. The company reported earnings of $4.51 per share, excluding 75 cents from non-recurring items, which fell short of the Zacks Consensus Estimate of $4.65. Despite this, the earnings per share improved by 16.8% year-over-year, thanks to cost-reduction benefits from the DRIVE program.

The company's revenues reached $22.2 billion, surpassing the Zacks Consensus Estimate of $21 billion. However, FedEx revised its fiscal 2025 earnings per share outlook downward due to challenging economic conditions. This marks the second time in four quarters that FedEx has missed earnings estimates, raising concerns among investors.

FedEx's stock is under scrutiny as investors assess its current valuation. The company has a price-to-earnings (P/E) ratio of approximately 14.94, indicating how the market values its earnings. Its price-to-sales ratio is about 0.67, meaning investors pay 67 cents for every dollar of sales, while the enterprise value to sales ratio is around 0.86.

The enterprise value to operating cash flow ratio stands at approximately 10.53, showing the relationship between FedEx's total valuation and its cash flow from operations. The earnings yield is about 6.69%, offering insight into shareholder returns. With a debt-to-equity ratio of approximately 0.27, FedEx maintains a relatively low level of debt compared to its equity, and a current ratio of about 1.24, indicating good liquidity to cover short-term liabilities.

FedEx (NYSE:FDX) COO Sells Shares Amid Mixed Fiscal Q3 2025 Results

  • FedEx COO for US and Canada, Smith John Alan, sold 3,345 shares at $243.55 each, leaving him with 23,347 shares.
  • The company reported earnings of $4.51 per share, missing the Zacks Consensus Estimate but showing a year-over-year improvement.
  • Revenues reached $22.2 billion, surpassing expectations, yet FedEx revised its fiscal 2025 earnings outlook downward due to economic challenges.

On March 27, 2025, Smith John Alan, the Chief Operating Officer for US and Canada at FedEx (NYSE:FDX), sold 3,345 shares of Common Stock at $243.55 each. This transaction leaves him with 23,347 shares. FedEx, a global leader in transportation and logistics, competes with companies like UPS and DHL in delivering packages worldwide.

FedEx recently announced its third-quarter fiscal 2025 results, showing mixed outcomes. The company reported earnings of $4.51 per share, excluding 75 cents from non-recurring items, which fell short of the Zacks Consensus Estimate of $4.65. Despite this, the earnings per share improved by 16.8% year-over-year, thanks to cost-reduction benefits from the DRIVE program.

The company's revenues reached $22.2 billion, surpassing the Zacks Consensus Estimate of $21 billion. However, FedEx revised its fiscal 2025 earnings per share outlook downward due to challenging economic conditions. This marks the second time in four quarters that FedEx has missed earnings estimates, raising concerns among investors.

FedEx's stock is under scrutiny as investors assess its current valuation. The company has a price-to-earnings (P/E) ratio of approximately 14.94, indicating how the market values its earnings. Its price-to-sales ratio is about 0.67, meaning investors pay 67 cents for every dollar of sales, while the enterprise value to sales ratio is around 0.86.

The enterprise value to operating cash flow ratio stands at approximately 10.53, showing the relationship between FedEx's total valuation and its cash flow from operations. The earnings yield is about 6.69%, offering insight into shareholder returns. With a debt-to-equity ratio of approximately 0.27, FedEx maintains a relatively low level of debt compared to its equity, and a current ratio of about 1.24, indicating good liquidity to cover short-term liabilities.

FedEx Soars 5% Following Jefferies’ Upgrade

Jefferies analysts upgraded FedEx (NYSE:FDX) from Hold to Buy, assigning a new price target of $275, slightly down from the previous $300, but reflecting renewed confidence in the company’s internal transformation efforts. As a result, shares surged more than 5% on Monday.

While broader market attention remains fixated on macroeconomic headwinds, Jefferies believes investors are overlooking FedEx’s structural cost improvements, which could drive earnings growth through fiscal 2026 and 2027, even in a sluggish revenue environment.

Key to this outlook are the company’s Network 2.0 restructuring initiative and its Tri-Color optimization strategy, both aimed at streamlining operations and improving profit margins. The analysts view these programs as underappreciated catalysts that could unlock substantial value over the next two years.

In addition, Jefferies highlights that any rebound in industrial activity—a major revenue driver for FedEx—could provide a significant earnings tailwind, amplifying the impact of internal efficiency gains.

Despite recent cuts to guidance and macro pressures, Jefferies sees a favorable risk-reward setup for FedEx, supported by operational transformation and potential cyclical upside, making the stock attractive at current levels.