Alejandro García
FedEx’s latest quarter shows what slashing aircraft, flights and head-office spend can do: adjusted earnings surged to $6.07 a share on $22.2 billion of revenue, beating consensus and lifting operating margin to its best level in two years. But a gloomy profit forecast for the new fiscal year—and a still-soft freight market—wiped out the feel-good factor, knocking the stock more than 5 % after hours as analysts warned that tariffs, Amazon logistics muscle and a global slowdown may crimp the turnaround story. reuters.com uk.investing.com money.usnews.com marketwatch.com investopedia.com
Q4 FY 2025 by the Numbers
- Adjusted EPS: $6.07 vs. $5.81 estimate, up 12 % YoY. reuters.com
- Revenue: $22.2 bn, essentially flat but ahead of LSEG consensus. reuters.com
- Adjusted operating margin: 9.1 % vs. 8.5 % last year, the best since FY 2023. newsroom.fedex.com
- Cost take-out: the DRIVE program delivered $2.2 bn in structural cuts for the year, while cap-ex fell 22 % to $4.1 bn. newsroom.fedex.com
- Capital returns: FedEx bought back $3 bn of stock and paid $1.3 bn in dividends in FY 2025. newsroom.fedex.com
How DRIVE & “Network 2.0” Unlocked Savings
Chief executive Raj Subramaniam hailed “a solid finish…while achieving our structural cost-reduction target” and pledged to “leverage the unique scale and flexibility of our global network” to keep trimming expenses. newsroom.fedex.com
The multiyear DRIVE plan has now racked up $4 bn in total savings since FY 2023 and aims for a further $1 bn of permanent cuts in FY 2026 through aircraft retirements, hub automation and route densification. newsroom.fedex.com marketscreener.com
Where the dollars came from
| Lever | FY 2025 Benefit (est.) | Proof-point |
|---|---|---|
| Flight-hour reductions & fleet retirements | ~$600 m | Press release aircraft retirements (12 planes) newsroom.fedex.com |
| Ground‐network re-routing (“Network 2.0”) | ~$500 m | CEO comments in prior calls fool.com |
| Head-count & SG&A cuts | ~$400 m | Prior DRIVE updates seekingalpha.com |
| Lower capital intensity | $1.1 bn cap-ex drop | FedEx data newsroom.fedex.com |
Wall Street’s Love–Hate Reaction
FedEx guided Q1 FY 2026 EPS to $3.40–$4.00, well below the $4.06 street view, triggering the post-market sell-off. reuters.com money.usnews.com Bank of America’s Ken Hoexter trimmed his target to $270, citing “lingering macro clouds,” while UBS said tariffs could dent FY 2026 volumes. moomoo.com investopedia.com Still, nine of 12 tracked brokers keep a Buy/Outperform rating, with an average target of $276—about 22 % upside from current levels. nasdaq.com
Price action snapshot
- Shares fell 4–5 % in after-hours trade on the results. reuters.com marketwatch.com
- The stock is down ~12 % over 12 months, under-performing the S&P 500 Industrials index. nasdaq.com
Competitive & Macro Headwinds
- Modal shift: Shippers continue to trade air speed for cheaper ground service, pressuring yield. reuters.com
- Tariffs & geopolitics: New U.S.–China tariff rounds could sap cross-border e-commerce volumes. reuters.com investopedia.com
- Amazon encroachment: FedEx has partnered with Amazon to haul oversize parcels in rural zones, but the e-commerce giant still expands its own network. marketwatch.com
- UPS & B2B softness: Industrial demand remains muted for both FedEx and rival UPS. reuters.com
The Freight Spin-Off: Unlocking Value or Adding Risk?
FedEx confirmed it will spin off FedEx Freight within 18 months, mirroring Honeywell-style simplification moves. Analysts peg Freight’s stand-alone value at up to $33 bn, roughly a third of FedEx’s current market cap. barrons.com ft.com Management says the carve-out will free capital for Network 2.0 upgrades, but skeptics warn it removes a high-margin buffer in down cycles. investopedia.com
Expert Sound-Bites
“Our fourth-quarter and full-year results illustrate our determination to manage costs, reduce capital intensity, and increase earnings to unlock additional shareholder value.” — John Dietrich, CFO newsroom.fedex.com
“The margin beat is great, but the guide is a gut-punch; management is prudent, yet the street wanted confidence.” — Rick Paterson, Loop Capital note to clients (ex-excerpt) nasdaq.com
“Tariffs could put a ceiling on FY 2026 growth unless global trade re-accelerates.” — UBS transport team investopedia.com
Risks & What to Watch in FY 2026
- Volume elasticity under higher shipping rates and tariffs.
- Execution risk on the Freight spin-off and Network 2.0 integration timeline.
- Fuel & wage inflation, especially if crude rebounds or labor markets tighten.
- Capital-allocation discipline—investors expect another $4 bn+ of buybacks if cash generation holds. newsroom.fedex.com wsj.com
Bottom Line
FedEx proved in Q4 that ruthless cost control can outrun a sluggish top line. Yet the muted outlook underscores how fragile parcel demand remains and how quickly macro shocks can erode margins. Investors betting on a rerating will be watching three things: the pace of the next $1 bn in savings, early signals from the Freight spin-off process, and whether management can defend yields without sacrificing the service edge that made FedEx an icon. Until then, the stock may bounce between bulls cheering efficiency gains and bears fretting that the easy cuts are now behind it.
