- FedEx topped estimates in its first report since spinning off its freight division. Revenue for the July-to-September quarter rose 12% to $22.86 billion against the $22.42 billion LSEG consensus, and adjusted EPS rose 28% to $3.74 versus $3.36 expected.
- The holiday outlook disappointed. FedEx expects to earn $6.33 a share at the midpoint for the October-to-December peak quarter, below the $6.58 FactSet consensus, and shares fell more than 2% in extended trading to about $297.
- Costs are the culprit. Executives flagged “transitory headwinds” from higher purchased transportation rates as the labor market for linehaul truck drivers tightens, along with higher fuel expenses, and expect domestic margins to be “down moderately” in the quarter.
- Management is leaning on efficiency and buybacks. Nearly 65% of eligible parcel volume now flows through about 630 Network 2.0 stations, up from 45% and about 490 at the end of June, and FedEx repurchased $2 billion of stock in the quarter, with $4.3 billion of authorization left.
What Happened?
This was also FedEx’s first report since moving to a December fiscal year-end from May, adding another variable to the numbers. Adjusted operating margin was 5.24%, roughly in line with the 5.21% consensus. Ground economy volume fell 4%, which COO Brie Carere said was intentional as the company leans into premium deliveries, and CEO Raj Subramaniam said “one hundred percent” that domestic margins will improve in 2027 and beyond.
Why It Matters?
FedEx had rallied with UPS earlier in the week, and the stock is up 31% year to date but about 10% below its Aug. 13 record close of $339.35. The guide shows that tight trucking labor and fuel costs are squeezing parcel carriers’ margins in their most important season, even as revenue grows from data center and premium business-to-consumer shipments.
What’s Next?
Watch the peak-season results for evidence the cost pressures are truly transitory, and the planned Network 2.0 conversions of Los Angeles, Charlotte and Oklahoma City after the holidays. Investors will also look for news on how FedEx monetizes its retained 19.9% stake in FedEx Freight.
Affected Tickers and Coins: FDX, UPS, AMZN
Source: CNBC Investing Club
