Release Date: March 20, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• FedEx Corp (FDX, Financial) achieved a 12% growth in adjusted operating income year-over-year, driven by revenue growth and cost savings.
• The company realized $600 million in DRIVE savings during the quarter, contributing to structural cost reductions.
• FedEx Corp (FDX) reported a 17% increase in adjusted operating income at Federal Express Corporation despite headwinds.
• The company is on track to achieve $2.2 billion in DRIVE savings for FY25, with a total target of $4 billion from the FY23 baseline.
• FedEx Corp (FDX) expanded its Sunday residential coverage to nearly two-thirds of the US population, enhancing service capabilities.

Negative Points

• FedEx Corp (FDX) lowered its FY25 adjusted EPS outlook to $18 to $18.60 due to uncertain demand and inflationary pressures.
• The expiration of the US Postal Service contract resulted in a $180 million headwind to adjusted operating income.
• Weakness in the industrial economy continued to pressure higher-margin B2B volumes, affecting overall performance.
• FedEx Freight experienced a 5% revenue decline due to lower volumes, fuel surcharges, and weight per shipment.
• Inflationary pressures on the cost base are expected to be higher than planned, impacting the full-year outlook.

Q & A Highlights

Q: Can you quantify the impact of inflation on your guidance and how it affects margins going forward? A: John Dietrich, CFO, explained that inflation has been a consistent factor, particularly affecting wages and volumes during peak times. It's one of several factors impacting guidance, and the company is focused on managing these costs.

Q: How is FedEx preparing for potential changes to the de minimis tax code, and what is the exposure to such shipments? A: Brie Carere, Chief Customer Officer, stated that FedEx is operationally ready for changes, particularly in the Asia market. The company is working closely with customers to prepare for any changes, and the majority of FedEx's export volumes are linked to B2B, with a minority under the de minimis exemption.

Q: What are the expectations for fiscal 2026, considering DRIVE and Network 2.0 initiatives? A: John Dietrich noted that while it's too early for specific guidance, the company will focus on profitable growth, with DRIVE initiatives expected to contribute $400 million in benefits. Network 2.0 savings will ramp up more significantly in FY27.

Q: Can you provide an update on the LTL business and its margin expectations? A: Rajesh Subramaniam, CEO, expressed confidence in the LTL business, noting that while B2B demand is currently soft, the company is well-positioned for a rebound. The focus remains on quality revenue and service improvements.

Q: How is FedEx managing the shift to deferred volumes and maintaining profitability? A: Brie Carere explained that the company is capturing deferred growth both domestically and internationally, with a focus on optimizing the network and cost structure. The deferred growth is primarily from new customer acquisitions, and the company is managing each product's yield effectively.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.