EPS of $3.46 decreased by 41.8% from previous year
Gross margin of 26.0%
Net income of 824.00M
"“We continue to reduce structural costs while deploying Tricolor, advancing Network 2.0 and improving our European operations. These strategies are enabling us to flex the network faster than ever before and lowering our cost to serve.”" - Raj Subramaniam
FedEx reported a solid QQ1 2026 result, delivering 3% consolidated revenue growth year over year (YoY) driven by strength in U.S. domestic parcel services, along with meaningful progress on structural cost reductions and transformation initiatives. Adjusted diluted EPS of $3.46 (GAAP $3.48) was supported by $200 million in transformation-related savings and a 17% rise in adjusted operating income for FedEx Express (FEC), accompanied by a 70 basis point expansion in FEC margin. The Freight segment faced continued macro weakness in the industrial economy, with Freight adjusted operating income declining roughly $70 million and margins contracting about 250 basis points, even as pricing actions and capacity management mitigated some pressures. Management reaffirmed a disciplined, multi-year transformation program (Drive/Network 2.0) expected to deliver about $1.0 billion in annual savings and a grossly favorable longer-term operating leverage as trade dynamics improve. The company also emphasized its strategic data and digital initiatives (FedEx Dataworks) and the accelerating use of AI for operations, routing, and new revenue models.
Management guided to a full-year adjusted EPS range of $17.20 to $19.00 for FY2026, with the midpoint at $18.10. This implies ~5% consolidated revenue growth at the midpoint and a roughly $1.0 billion headwind from the global trade environment, offset by $1.0 billion of transformation-related savings and a post-USP contract-expiration tailwind from yield management and pricing discipline. The planned FedEx Freight spin-off remains on track for June 2026. Near-term catalysts include ongoing onboarding of Amazon capacity, continued yield discipline in the U.S. domestic parcel business, and the ramp of Network 2.0 across the U.S. and Canada, which management asserts will enhance service quality and drive a higher mix of high-value B2B/B2B2C shipments.
Overall, the QQ1 print demonstrates FedEx’s resilience and operational agility in a volatile macro environment, while setting a clear path toward higher long-term profitability via technology-enabled revenue opportunities and aggressive cost transformation. Investors should monitor the pace of peak-season demand, the trajectory of international export demand, the timing and profitability of Freight’s standalone operations after the spin-off, and the realization of Network 2.0 savings and One FedEx synergies.
Key Performance Indicators
Revenue
22.24B
QoQ: 0.38% | YoY:0.61%
Gross Profit
5.79B
26.01% margin
QoQ: 22.30% | YoY:12.94%
Operating Income
1.19B
QoQ: -8.20% | YoY:-40.31%
Net Income
824.00M
QoQ: -9.35% | YoY:-44.10%
EPS
3.48
QoQ: -8.18% | YoY:-41.81%
Revenue Trend
Margin Analysis
Key Insights
Consolidated QQ1 2026 revenue: $22.244B, up 3% YoY (management notes 3% QoQ YoY growth driven by U.S. domestic package strength).
Net income: $0.824B; net margin 3.70%; Adjusted EPS: $3.46 (GAAP $3.48); weighted-average diluted shares: 243.0M.
EBITDA: $2.226B; EBITDA margin about 10.0%.
Financial Highlights
Revenue and profitability:
- Consolidated QQ1 2026 revenue: $22.244B, up 3% YoY (management notes 3% QoQ YoY growth driven by U.S. domestic package strength).
- Gross profit: $5.786B; gross margin 26.01%.
- Operating income: $1.186B; operating margin 5.33%.
- Net income: $0.824B; net margin 3.70%; Adjusted EPS: $3.46 (GAAP $3.48); weighted-average diluted shares: 243.0M.
- EBITDA: $2.226B; EBITDA margin about 10.0%.
Segment and margin dynamics:
- FedEx Express (FEC) adjusted operating income up 17% YoY with a 70 bp margin expansion, driven by higher yields and cost reduction, partially offset by wage and purchased transport pressures.
- Freight: adjusted operating income down ~ $70M; margin down ~250 bp, reflecting softer industrial demand but with ongoing opportunities in high-margin lanes and potential normalization in the back half of FY26.
- International priority/economy freight revenues grew 14% YoY on high flow-through; Tricolor continued to drive revenue per pound growth, particularly across international lanes.
Capital allocation and liquidity:
- Share repurchases: $500M in the quarter; $1.6B remaining on the 2024 authorization.
- Cash balance: $6.2B; liquidity and access to capital remain strong with investment-grade credit ratings.
- Capex: $623M in QQ1; full-year capex guidance maintained at $4.5B for FY26 to support Network 2.0 and fleet/operations modernization.
- Pension contributions: voluntary contributions expected up to $400M in FY26 (down from prior guidance of up to $600M).
Outlook and guidance:
- FY26 adjusted EPS guidance: $17.20–$19.00; midpoint $18.10.
- Revenue growth: midpoint ~5%; headwinds from global trade expected to be approximately $1B, offset by $1B transformation savings and anticipated rate/tariff benefits.
- USPS contract expiration: $160M headwind embedded in the full-year outlook; additional direct-trade-related expenses of about $300M related to customs clearance and support costs.
- Freight spin-off: on track for June 2026 separation; ongoing focus on ramping dedicated sales and technology investments to support customer experience post-separation.
Key qualitative takeaways:
- The company continues to emphasize data and AI capabilities (Dataworks, AI initiatives) as a differentiator and potential revenue model, with management highlighting more than 2 PB of data processed daily and 100B+ transactions.
- Management expects a sequential improvement in Q2 adjusted EPS and notes ongoing onboarding of new businesses (e.g., Amazon), with peak season activity anticipated to contribute to upside in the back half of FY26.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
22.24B
0.61%
0.38%
Gross Profit
5.79B
12.94%
22.30%
Operating Income
1.19B
-40.31%
-8.20%
Net Income
824.00M
-44.10%
-9.35%
EPS
3.48
-41.81%
-8.18%
Key Financial Ratios
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Themes and management quotes from the earnings call:
- Strategy and transformation: Raj Subramaniam highlighted Network 2.0, Tricolor, and cost-reduction as key levers for profitability and networking flexibility. Quote: “We continue to reduce structural costs while deploying Tricolor, advancing Network 2.0 and improving our European operations… lowering our cost to serve.”
- Data, AI, and value creation: Subramaniam underscored FedEx Dataworks and AI-led capabilities as core to future growth and differentiation, citing a data platform and “one of the richest logistics, intelligent assets in the world.” Quote: “The fuel for AI is data… FedEx owns one of the richest logistics, intelligent assets in the world.”
- Revenue and margin dynamics: Brie Carere and John Dietrich discussed the 3% revenue growth and 17% YoY adj op income growth for FEC, with Freight facing continued pressure. Key quotes: “Revenue was up 3% year-over-year, driven by strength across our U.S. domestic package services.”; “FedEx Freight … adjusted operating income declined by just over $70 million.”
- Guidance and trade headwinds: Management stressed the $1B global trade headwind and the USPS contract expiration as key bear points, offset by $1B in transformation savings and yield management. Quote: “We expect full year adjusted earnings to be $17.20 to $19 per diluted share… reflects a range of scenarios in what remains a dynamic global operating environment.”
- Peak season and onboarding: Discussion of peak-season dynamics and onboarding of Amazon, with expectations for modest peak ADV growth and higher total peak volume in H2. Quote: “We are cautiously optimistic about peak season growth…” and “Amazon onboarding will be complete by the third quarter.”
- Freight spin-off progress: Update on the spin-off timeline and the plan to list Freight as FDXF, including ramping up dedicated sales personnel and IT investments.
- Competitive positioning and market dynamics: Several statements point to U.S. domestic strength, pricing discipline, and improved yield, with international lanes under pressure, particularly China-U.S. and the impact of de minimis changes.
“We continue to reduce structural costs while deploying Tricolor, advancing Network 2.0 and improving our European operations. These strategies are enabling us to flex the network faster than ever before and lowering our cost to serve.”
— Raj Subramaniam
“The fuel for AI is data. FedEx owns one of the richest logistics, intelligent assets in the world.”
— Raj Subramaniam
Forward Guidance
Analysis of Outlook and Trajectory:
- Revenue trajectory: The midpoint guidance implies 5% consolidated revenue growth for FY26, supported by continued domestic parcel strength, onboarding of new business (including Amazon), and international freight growth on higher-value lanes, offset by trade-related headwinds (notably the China-to-U.S. channel) and de minimis changes. The company expects a modest sequential improvement in Q2 earnings consistent with peak-season dynamics and transformation savings under Network 2.0 and DRIVE.
- Profitability: The midpoint scenario envisions a $1.0B headwind from the global trade environment, offset by $2.3B of yield-related tailwinds and $1.0B of transformation-related savings, resulting in overall adjusted operating income around $6B in one bridge scenario. However, the exact mix is highly sensitive to global trade policy shifts, industrial activity, and FX movements.
- Capacity and cost management: The company plans $4.5B of annual capex in FY26 to support Network 2.0, while maintaining cost discipline to realize $1B transformation savings. Direct trade-related costs (approximately $300M) and USPS headwinds (~$160M) remain material headwinds to profitability in the near term.
- Risks and monitoring: Key variables include evolution of global trade and demand, health of the industrial economy, U.S. domestic demand, inflation, FX, and the degree of ramp in new higher-margin verticals (health care, premium B2B, and global airfreight).
- Investor watchpoints: On track for Freight spin-off in June 2026; watch for progress on Network 2.0 ramp efficiency, realized savings, new revenue models leveraging data/AI, progress of Amazon onboarding, peak-season revenue/volume evolution, and the stabilization/expansion of higher-margin international freight lanes.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
FDX Focus
26.01%
N/A
N/A
N/A
GXO
10.40%
-1.88%
-3.34%
-12.11%
JBHT
9.60%
6.12%
1.43%
31.16%
EXPD
13.20%
9.97%
8.92%
20.33%
CHRW
1.00%
4.37%
7.80%
22.89%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
FedEx QQ1 2026 reinforces a constructive risk-adjusted case for structurally longer-term upside, anchored by a large and unique data-driven asset base, and a tangible pathway to higher profitability through Network 2.0, Tricolor, and One FedEx savings. The EPS midpoint implies meaningful margin expansion is achievable if current growth legs (U.S. domestic parcel, premium B2B, and healthcare verticals) sustain yields and the global trade headwinds moderate. The Freight spin-off is a potential catalyst for value unlocking and more focused execution in the LTL market, though it adds execution risk during the transition. Relative to peers, FedEx trails EXPD on operating margin but offers stronger asset-backed network scale, more comprehensive cross-border logistics capabilities, and a clear transformation runway. Key drawcards for the investment thesis include: resilient domestic parcel growth, robust capital allocation (buybacks + dividends), and optionality from AI-enabled services and new revenue models. Risks include macro trade dynamics, freight market cyclicality, and execution risk around onboarding of large customers such as Amazon and the Freight spin-off timeline.
Key Investment Factors
Growth Potential
Medium-to-long-term upside from data-driven monetization (FedEx Dataworks), enterprise AI deployment, and new revenue models leveraging the data platform (HS classifications, predictive routing, and customer workflow tools). Tricolor improves network density, reduces unit costs, and enables profitable growth in international priority/economy freight; expected to contribute to higher margin in the back half of FY26 and beyond as industry demand improves.
Profitability Risk
Key near-term risks include a ~$1B headwind from global trade disruptions, ongoing de minimis changes impacting cross-border volumes, USPS contract expiration ( ~$160M headwind), and a softer industrial economy affecting FedEx Freight. Execution risk around Amazon onboarding, peak-season volatility, and integration of Network 2.0 across the network remains. FX movements and potential acceleration in supply-chain disruptions can further pressure margins.
Financial Position
Solid liquidity with $6.2B cash on hand and investment-grade credit ratings; $500M of stock repurchased in QQ1; $1.6B remaining under 2024 buyback authorization; capex discipline maintained with target $4.5B for FY26; pension contributions reduced to up to $400M in FY26 to preserve cash flexibility; ongoing ability to finance the spin-off of FedEx Freight (FDXF) and fund growth initiatives.
SWOT Analysis
Strengths
Strong U.S. domestic parcel franchise with improving yields and volume strength (notably health care vertical and SMB momentum).
Deepening digital capabilities and data assets via FedEx Dataworks; AI-enabled operations and predictive capabilities.
Network 2.0 and Tricolor strategies improving capacity flexibility, density, and throughput efficiency.
Stronger balance sheet with ample liquidity and a track record of capital returns.
Weaknesses
Consolidated operating margin (~5.3%) lagging peer best-in-class logistics peers (e.g., EXPD ~9.97% as per peer data).
Freight segment exposed to macro weakness in industrial economy and freight rates pressure; higher costs (labor, purchased transport).
Significant near-term headwinds from global trade policy shifts and de minimis changes impacting volumes and costs.
Opportunities
monetization of high-value data assets and AI tools (HS classifications, predictive routing, workflow platforms).
Expansion of health care and premium B2B segments; Best Buy and other wins illustrate value proposition.
Amazon onboarding and U.S. domestic growth opportunities supporting revenue mix.
European profitability improvements and balanced growth in Express/LTL as demand recovers.
Threats
Global trade volatility and potential tariff/regulatory shifts could materially alter volume/mix.
USPS contract expiration risk and de minimis-related changes create revenue and cost headwinds.
Competitive dynamics with asset-light peers and other carriers intensifying pricing pressure.