FedEx Corporation Q1 FY2026 earnings call

Key Managerial Messages - Raj:

• Delivered solid quarter in line with Q1 outlook despite global trade volatility. Reducing structural costs, deploying Tricolor, advancing Network 2.0 and improving European operations. Winning new business in high-value verticals. Making progress on FedEx Freight spin-off. Flexed network with Tricolor strategy, Network 2.0 rollout progressing well with optimized stations, Europe profitability improved, Tricolor driving densification and reduced unit costs, data and technology foundational with advanced digital twin. Announced FedEx Corp. Investor Day in Feb 2026.

Key Managerial Messages - Brie:

• Enterprise revenue up 3% year-over-year, highest quarterly rate since pandemic. FEC revenue up 4% from U.S. domestic package revenue strength. International export volumes declined but commercial team captured demand from other regions. U.S. domestic ADV up 5%. FedEx Freight average daily shipments declined but sales team made progress. Parcel pricing environment improved. Partnered with Best Buy. Cautiously optimistic about peak season growth. Advancing commercial priorities including B2B, SMB, Europe and global airfreight.

Key Managerial Messages - John:

• Q1 results reflect tenacity and agility. Adjusted earnings per share $3.83, up 6%. Maintained capital expenditure discipline, repurchased stock and grew dividend. FEC adjusted operating income growth and drivers. FedEx Freight's situation. Capital allocation, including stock repurchase and bond offering. FY '26 adjusted EPS outlook based on various factors. Introduced FY '26 adjusted operating income bridge. Q2 expected sequential earnings improvement. FedEx Freight spin-off progress.

At FEC, adjusted operating income increased by $168 million, up 17% and adjusted operating margin expanded by 70 basis points. This was driven by higher yields, continued cost reduction efforts and increased U.S. domestic package volume. At FedEx Freight, adjusted operating income declined by just over $70 million and adjusted operating margin contracted 250 basis points. Overall, revenue was up 3% year-over-year, driven by strength across our U.S. domestic package services.

Forward-looking Guidance

• Expect full year adjusted earnings to be $17.20 to $19 per diluted share. Revenue growth expected to be 4% to 6%. FEC expected to have 6% revenue growth with adjusted operating margin down slightly. FedEx Freight expected revenue flat to up modestly year-over-year depending on market conditions. FY '26 adjusted operating income bridge considered various factors including volume-related revenue, yield, expenses, trade-related headwinds, etc. Q2 expected sequential earnings improvement.

Risks

• Global trade environment uncertainty. U.S. Postal Service contract expiration impact. Industrial economy weakness affecting FedEx Freight. Exchange rate fluctuations. Trade-related direct expenses increase.

Q: Jordan Alliger asked about the low and high end of EPS range and what impacts it.

A: John Dietrich said it's determined by variety of factors like evolution of global trade, health of industrial economy, U.S. domestic demand, etc.

Q: Ken Hoexter inquired about incremental margin growth and operating gains not keeping pace.

A: John Dietrich mentioned $1 billion headwind due to environmental impacts, and Raj Subramaniam added it's a big headwind for fiscal year '26 and they're working to mitigate costs.

Q: Bascome Majors asked about data side strategy and new revenue models after hiring Vishal.

A: Rajesh Subramaniam talked about value of data, data platform and AI, bearing fruit in operations and differentiation, nascent area with long runway ahead.

Q: Scott Group asked about sequential earnings growth for Q2 and why operating leverage not better with revenue growth.

A: John Dietrich said they're not guiding to Q2 year-over-year basis but expect sequential earnings improvement in Q2, and flow-through not great due to pressures like $1 billion global headwind.

Q: Thomas Wadewitz wanted to understand global trade headwind impact.

A: Brie Carere said $150 million in Q1 was from reduction in top line revenue, especially China lane, and John Dietrich added direct trade-related expenses and base expense increases contribute to $1 billion headwind.

Q: Jonathan Chappell asked about revenue acceleration and what drives it.

A: Brie Carere said it's from continuation of trends, onboarding of wins, and FedEx Freight yield improvement.

Q: Brandon Oglenski asked about domestic volumes and competitive landscape.

A: Brie Carere said it's self-help with market share acquisition, strategic profitable growth, and focus on value proposition.

Q: Chris Wetherbee asked about revenue range and $300 million direct related expenses.

A: John Dietrich said not direct connection between revenue and EPS range, and $300 million was customs clearance and related expenses due to trade environment.

Q: Richa Harnain asked about driving share gain and onboarded business profitability.

A: Brie Carere said it's from strategic segments execution, loyalty program, health care and e-commerce growth.

Q: Ravi Shanker asked about customer reaction to de minimis expiry and pull forward of international volumes.

A: Brie Carere said it was stressful for customers, and she's optimistic about American consumer and no indication of all volumes being pull forward.

Q: Brian Ossenbeck asked about peak strength and FedEx Freight outlook.

A: Brie Carere said peak growth has FedEx-related factors, and FedEx Freight is focused on revenue quality with lapping benefit in back half.

Q: J. Bruce Chan asked about airfreight market and Tricolor.

A: Brie Carere and Rajesh Subramaniam talked about airfreight selectivity, Tricolor's role in decongesting hubs and densifying network, and good implementation.

Q: Elliot Alper asked about Network 2.0 and peak season changes.

A: Rajesh Subramaniam said Network 2.0 progress is as planned, no change to plans.

Q: David Vernon asked about operating leverage and why not more.

A: John Dietrich said it's due to variety of factors including revenue hit from trade environment and mix shift.

Q: Ariel Rosa asked about revenue growth from new business wins and FedEx Freight spin costs.

A: John Dietrich talked about Freight spin costs being IT and systems-related, and Brie Carere said revenue range is from combination of factors like share gain, yield, etc.