Archive · Wed Oct 28 · Plain text · Event page
FedEx raises 2026 profit outlook to $18.00-$18.60 a share, sees U.S. margin pressure as 'transitory'
Executives said a $2 billion buyback pace, about $4 billion in free cash flow and strong international results offset trucking-cost and pilot-contract headwinds that will weigh on fourth-quarter U.S. margins.
FedEx raised and tightened its calendar 2026 adjusted earnings outlook to $18.00 to $18.60 per share on Tuesday after third-quarter adjusted earnings of $3.74 per share, up 28% from a year earlier, and introduced an adjusted free cash flow outlook of about $4 billion. Executives said U.S. domestic margin pressure in the fourth quarter is temporary and committed to a higher full-year U.S. domestic margin in 2027.
Quarter results and outlook
Third-quarter revenue rose 12%, including a four-percentage-point boost from fuel-driven surcharges, CEO Raj Subramaniam said. Consolidated adjusted operating income rose $164 million, or 16%, despite a $100 million hit from a new pilot agreement and a $75 million increase in variable incentive compensation, according to a FedEx executive on the call.
International adjusted operating income climbed $101 million, or 52%, with 80 basis points of margin expansion. U.S. domestic adjusted operating income rose $67 million, or 7%, but margin fell 20 basis points, including a 30-basis-point drag from higher fuel prices.
FedEx expects 2026 revenue growth of about 12% and a slight rise in full-year adjusted operating margin. The company expects fourth-quarter adjusted earnings of $6.30 to $6.63 per share and a fourth-quarter average share count of about 238 million.
Fourth-quarter headwinds
For the fourth quarter, FedEx said it expects U.S. domestic adjusted operating margin to be down moderately year over year. It cited $130 million from higher over-the-road line haul rates, $100 million from the pilot agreement and $80 million in aircraft maintenance expense. The company attributed the trucking costs largely to tightness in the truck driver labor market tied to regulatory changes.
"Importantly we believe this pressure is transitory," a FedEx executive said, adding that the company forecasts a full-year 2027 U.S. domestic margin increase. The executive said about 70% of over-the-road line haul miles are covered by FedEx employees or contracted service providers, and just over 10% are purchased over-the-road miles. Subramaniam said the company has operational and pricing levers to address the costs.
FedEx also said variable compensation should not be a headwind in 2027. It said reaching the top of the earnings range could add up to $100 million in variable compensation expense.
Capital returns and Freight stake
FedEx repurchased $2 billion of stock since June and has $4.3 billion remaining under its buyback authorization. Executives reiterated a $6 billion adjusted free cash flow target by the end of 2029 and expect $3.9 billion in 2026 capital spending.
FedEx must monetize its 19.9% retained stake in FedEx Freight within 24 months of the spin-off date to preserve the separation's tax-efficient status, a FedEx executive said. Executives gave no specifics on how the stake would be sold or how the proceeds would be used beyond saying the capital would be deployed to maximize shareholder value.
Peak season and international
Domestic parcel executive Brie Carere said FedEx's top 30 customers, which drive about 35% of its peaking factor, forecast roughly 2% average daily volume growth for the peak period. She said small-business volume grew faster than large customers in the third quarter and that FedEx expects "a strong service peak and a strong profit peak."
Subramaniam said FedEx remains on track for an 8% international operating margin in 2029 and called that "only a waypoint" toward double digits. He said the company expects $650 million of operating profit improvement in Europe by 2029, mostly from cost reduction, and is cutting domestic capacity in Italy, the U.K. and France.
Bulletins
FEDEX CEO: CLOSED SALE OF FEDEX SUPPLY CHAIN TO CMA CGM GROUP THIS MONTH
FEDEX: REPURCHASED $2 BILLION OF STOCK SINCE JUNE, ABOVE ORIGINAL PLAN; Q3 REVENUE UP 12%
FEDEX: Q3 ADJUSTED OPERATING INCOME UP 16%; EXPRESS INTL REVENUE UP 17%, ADJ OP INCOME UP 52%
FEDEX: RAISES, TIGHTENS CY2026 ADJ EPS OUTLOOK TO $18-$18.60; MIDPOINT IMPLIES 23% GROWTH
FEDEX: EXPECTS ~$4 BILLION ADJUSTED FREE CASH FLOW THIS CALENDAR YEAR
FEDEX: NEARLY 65% OF ELIGIBLE VOLUME IN ~630 NETWORK 2.0 STATIONS; 260+ STATIONS CLOSED
FEDEX: EXPECTS NEARLY $1B NETWORK 2.0 SAVINGS BY YEAR-END, CUMULATIVE $2B BY END OF 2027
FEDEX: ON TRACK FOR $650 MLN EUROPE-DRIVEN INTL ADJ OPERATING INCOME IMPROVEMENT BY END OF 2029
FEDEX: NAMES JAMERE JACKSON CFO EFFECTIVE NOV 30; FORMER AUTOZONE CFO
FEDEX: DEPLOYING DEXTERITY ROBOTIC LOADERS AT HAGERSTOWN, MARYLAND HUB FOR PEAK SEASON
FEDEX: Q3 REVENUE GREW BY $2.4 BILLION YEAR OVER YEAR
FEDEX: Q3 U.S. DOMESTIC ADV UP 2%; INTL EXPORT VOLUME UP 8%; INTL FREIGHT REVENUE UP 28%
FEDEX: ANNOUNCES 5.9% GENERAL RATE INCREASE EFFECTIVE JAN 4; DOMESTIC PACKAGE YIELD UP 7%
FEDEX: Q3 U.S. DOMESTIC FREIGHT REVENUE PER POUND UP 6%; INTL FREIGHT REVENUE PER POUND UP 11%
FEDEX: ONBOARDED 13 MAJOR AUTOMOTIVE CUSTOMERS; 30 IATA CEIV PHARMA CERTIFICATIONS ACHIEVED
FEDEX: NOW EXPECTS 12% CY2026 REVENUE GROWTH, INCLUDING ~4 PTS FROM FUEL SURCHARGE REVENUE
FEDEX: EXPECTS 10% Q4 REVENUE GROWTH; U.S. DOMESTIC UP HIGH SINGLE DIGITS, INTL UP HIGH TEENS
FEDEX Q3 ADJ EPS $3.74, UP 28% YEAR OVER YEAR
FEDEX Q3 ADJ OPERATING INCOME UP $164 MILLION, OR 16%, DESPITE $100 MILLION PILOT AGREEMENT HIT
FEDEX: Q3 U.S. DOMESTIC ADJ OPERATING INCOME UP $67 MILLION, OR 7%; MARGIN DOWN 20 BPS
FEDEX: Q3 INTL ADJ OPERATING INCOME UP $101 MILLION, OR 52%; MARGIN EXPANDED 80 BPS
FEDEX: REPURCHASED $2 BILLION OF STOCK SINCE JUNE; $4.3 BILLION BUYBACK AUTHORIZATION REMAINS
FEDEX: CONTINUES TO EXPECT $3.9 BILLION CY26 CAPEX, 90% MAINTENANCE OR EFFICIENCY RELATED
FEDEX: INTRODUCES CY26 ADJ FREE CASH FLOW OUTLOOK OF ~$4 BILLION
FEDEX: TARGETS $6 BILLION ADJ FREE CASH FLOW BY END OF 2029; 4% CAPEX-TO-REVENUE TARGET
FEDEX RAISES, TIGHTENS CY26 ADJ EPS OUTLOOK TO $18.00-$18.60
FEDEX: SEES CY26 REVENUE GROWTH ~12%, INCL ~4 PTS FUEL SURCHARGE; EFFECTIVE TAX RATE ~22.5%
FEDEX: SEES EMBEDDED Q4 ADJ EPS RANGE OF $6.30 TO $6.63
FEDEX: SEES CY26 BASE EXPENSE HEADWIND OF $2.7 BILLION VS $2.6 BILLION IN JUNE BRIDGE
FEDEX: SEES Q4 ADJ INTL OP MARGIN EXPANSION; Q4 U.S. DOMESTIC MARGIN DOWN MODERATELY Y/Y
FEDEX: SEES Q4 HEADWINDS $130M LINE HAUL RATES, $100M PILOT PACT, $80M AIRCRAFT MAINTENANCE
FEDEX: SEES Q4 CY26 AVERAGE SHARE COUNT OF ~238 MILLION; SEES CY27 U.S. DOMESTIC MARGIN UP Y/Y
FEDEX: Q3 U.S. GROUND ECONOMY VOLUME DOWN 4% BY DESIGN AS IT FOCUSES ON PREMIUM E-COMMERCE
FEDEX: Q3 U.S. DOMESTIC MARGIN HIT BY $100M PILOT PACT, $75M VARIABLE COMPENSATION
FEDEX CFO: TARGETING ABOUT $4 BILLION OF FREE CASH FLOW THIS CALENDAR YEAR
FEDEX: REQUIRED TO MONETIZE FREIGHT STAKE WITHIN 24 MONTHS OF SPIN DATE; Q3 BUYBACK $2 BILLION
FEDEX CFO: EXPECTS HIGHER EARNINGS GROWTH RATES AND MORE FLOW-THROUGH IN CY27 VS Q4
FEDEX CFO: Q4 BASE EXPENSE UP ~4% VS YIELD GROWTH EX-FUEL AND FX ~4.6%, 60 BPS POSITIVE SPREAD
FEDEX CFO: UP TO $100M ADDITIONAL VARIABLE COMP EXPENSE AT TOP OF CY26 RANGE; ABATES IN CY27
FEDEX: Q3 INTL REVENUE GROWTH 17%, OPERATING GROWTH 52% Y/Y; TARGETS 8% OP MARGIN IN CY29
FEDEX: TARGETS CUTTING EUROPE DOMESTIC CAPACITY: ITALY 20%, U.K. 30%, FRANCE 40%
FEDEX: ON TRACK FOR $650M EUROPE OPERATING PROFIT IMPROVEMENT BY CY29, MAJORITY COST CUTS
FEDEX CFO: FREIGHT STRANDED COSTS STARTED YEAR AT $350M, CONFIDENT OF ENDING AT $250M
FEDEX: CY27 Q4 HAS ONE LESS OPERATING DAY, $150M+ HEADWIND; PILOT CONTRACT HEADWIND IN 1H CY27
FEDEX: COMMITTED TO 4% CORE GROWTH BEYOND CY26, EX-FUEL SURCHARGE; 2% VOLUME, 2% YIELD
FEDEX CEO: 100% CONVINCED TO IMPROVE U.S. DOMESTIC MARGINS IN 'TWENTY SEVEN AND BEYOND
FEDEX: NETWORK 2.0 TARGETS $1B SAVINGS IN 2026, CUMULATIVE $2B BY 2027; 260+ FACILITIES CLOSED
FEDEX: 65% OF ELIGIBLE OFF-PEAK ADV RUNNING TO NETWORK ENTERING PEAK; PHOENIX, DC DONE
FEDEX CEO: PORTFOLIO 'LARGELY COMPLETE'; MAY CLOSE 'THINGS HERE AND THERE', TARGETING 2 DEALS
FEDEX: EXPECTS INTERNATIONAL MARGIN TO EXPAND IN Q4 Y/Y AND IMPROVE ACROSS CY27
FEDEX: B2B IS 60% OF REVENUE; TARGETS 4 KEY VERTICALS REPRESENTING OVER $130B MARKET
FEDEX: AI/DATA CENTER VERTICAL FASTEST-GROWING SEGMENT; AUTOMOTIVE UP HIGH SINGLE DIGITS
Posts (32)
Transcript
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Good day and welcome to the FedEx third quarter.
good day and welcome to the fedex third quarter calendar year twenty
quarter calendar year 2026 earnings call.
twenty six earnings call
participants are in listen-only mode. Should you need assistance?
all participants are in listen only mode
assistance, please signal a conference specialist by pressing the star key.
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key followed by zero. After today's presentation,
presentation, there will be an opportunity to ask questions. To ask a question.
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question, you may press star, then one on your touchdown phone.
To adjourn your question, please press star then two.
Please note, this event is being recorded.
please note this event is being recorded
I would now like to turn the conference over to Jenny Hollander, Vice President.
president of investor relations. Please go ahead.
would now like to turn the conference over to jenny hollander vice president of investor relations
please go ahead
Good afternoon, and welcome to.
FedEx corporations calendar 2026, third corporation.
good afternoon and welcome to fedex corporation's
calendar twenty twenty six
third quarter earnings conference call
quarter earnings conference call. Our first earnings call that aligned.
aligns our results with a calendar year and fiscal year.
our first earnings call that aligns our results
with the calendar year end fiscal year
the third quarter earnings release staff book
third quarter earnings release, statbuck, and form ten queue.
which also includes June 2026 results.
and form ten q which also includes june twenty twenty six results
are on our website at investors.fedex.com.
are on our website at investors fedex dot com
additionally
Additionally, this afternoon we released the 8K filing with our
this afternoon we released an eight ks filing
re-halfed and re-segmented financials for Q1 and Q2.
with our recasted and resegmented financials
for q1 and q2 of this calendar year
Q2 of this calendar year. This call and the accompanying slide.
slides are being streamed from our website. During our QA session,
this call and the accompanying slides are being streamed from our website
callers will be limited to one question to allow us to accommodate all.
during our q and a session
callers will be limited to one question to allow us to accommodate all those who would like
to participate
all those who would like to participate. Certain statements during the
during this conference call may be considered forward-looking statements, as just
certain statements during this conference call
may be considered forward looking statements
defined in the private securities litigation reform act of 1995.
1995. Such forward-looking statements are subject to risks.
as defined in the private securities litigation reform act of nineteen ninety five
such forward looking statements
uncertainties, and other factors that could cause actual results.
are subject to risks uncertainties
and other factors
results to differ materially from those expressed or implied by such for.
that could cause actual results to differ materially
from those expressed or implied by such forward looking statements
forward-looking statements. For additional information on these factors,
please refer to our press releases and filings with the SEC.
for additional information on these factors
please refer to our press releases and filings with the sec
Today's presentation also includes certain non-
non-gap financial measures. Please refer to investors.
today's presentation also includes certain
non gaap financial measures
please refer to investors fedex dot com
investors.fedex.com for a reconciliation of the non-gap financial measures.
discussed during this call to the most directly comparable gap measures.
for a reconciliation of the non gaap financial measures discussed during this call
to the most directly comparable gaap measures
measures. Joining us for prepared remarks on the call today are.
joining us for prepared remarks on the call today
Raj Supermanium, president, and CEO.
are
raj subramaniam president and ceo
Karari, executive vice president and chief customer officer.
bree carreri executive vice president and chief customer officer
and quadrus. Enterprise late president and interim CFO.
and claude russ
enterprise vice president and interim cfo
now i will turn the call over to raj
CFO. Now I will turn the call over to Raj.
Thank you, Jenny, and well done to Team FedEx for delivering a
thank you jenny and well done
to team fedex for delivering another strong quarter
another strong quarter. We're serving our customers.
customers well, driving significant free cash flow and sustainable.
are serving our customers well driving significant free cash flow
sustaining momentum toward our twenty twenty nine financial commitments.
commitments. The third quarter, we grew revenue across.
and sustaining momentum toward our twenty twenty nine financial commitments
the third quarter we grew revenue across
key b2b verticals and premium b2c
across key B to B verticals and premium B to C.
supported double digit growth and consolidated adjusted operating.
income. From network 2.0 to the optimization of our
which supported double digit growth in consolidated adjusted operating income
our European network, to our global air freight strategy.
from network two point zero to the optimization of our european network
to our global air freight strategy
we continue to transform fedex
We continue to transform FedEx, driving greater density.
density, flexibility, and efficiency. Building
driving greater density
flexibility and efficiency
on our data and technology advantage, we announce new collaboration.
building on our data and technology advantage
collaborations to provide value-added services for existing and new customers.
we announced new collaborations to provide value added services for
customers. We also take a meaningful strategic.
and new customers
strategic actions to become a more focused company.
we've also taken meaningful strategic
to become a more focused company
deliberately allocating capital to create stockholder value.
while deliberately allocating capital to create stockholder value
On June 1, we successfully spun off FedEx rate.
on june one
Fright. And earlier this month, we closed the sale of.
we successfully spun off fedex freight
FedEx supply chain to CMA, CGM group.
and earlier this month we closed the sale of fedex
supply chain
to cma
cgm group
group. And we are nearing completion of.
the in-post transaction. This investment had
and we are nearing completion of the in post
transaction
this investment
subsequent commercial agreements will provide FedEx with access.
access to imposts expands of European.
and subsequent commercial agreements will provide fedex with access
B2C network. While enabling us to deploy our
to impulse expansive european b2c network
our assets more effectively across the European
while enabling us to deploy our assets more effectively
B2B space. Our earnings performed.
across the european b2b space
performance, solid execution from these portfolio-shaping actions.
our earnings performance
actions. And CapEx discipline are driving strong.
solid execution from these portfolio shaping actions
adjusted free cash flow. With this
and capex discipline are driving strong adjusted
free cash flow
cash generation, we are focused on rewarding our stockholders.
with this cash generation
stockholders. Since June, we have repurchased two.
we are focused on rewarding our stockholders
since june
billion dollars worth of FedEx stock. Our June through
have repurchased two billion dollars worth of fedex stock
September repurchases were greater than our original plan.
our june through september repurchases were greater than our
and a reflection of our conviction in the substance shield value.
original plan and a reflection of our conviction
value that exists in our chairs.
in the substantial value that exists in our shares
Turning to our Q3 canola results on a
turning to our q3 consolidated results
a year-over-year basis, we grew revenue by 12%.
on a year over year basis
Supported by strong base eels across.
we grew revenue by twelve percent
both sorrels for us, US domestic, and international.
supported by strong base yields across both our
express u s domestic
international segments. We more than offset cost headwinds for.
and international segments
from purchase transportation rates. The new pilot ignorement and very
we more than offset cost headwinds from purchase transportation rates
variable compensation, growing adjusted operating income.
the new pilot agreement and variable compensation
growing adjusted
income by 16%.
operating income by sixteen percent
With Express, US domestic, we grew revenue by
with express u s domestic
10% and adjusted operating income by 7%.
we grew revenue by ten percent
and adjusted operating income by seven percent
With an Express International, we grew revenue by 7%.
within express international
17% and adjusted operating income by 52%.
we grew revenue by seventeen percent
52%. We are focusing our commentary today.
and adjusted operating income by fifty two percent
on calendar Q3, covering the July through September.
we are focusing our commentary today on calendar q3
September period. However, given it has been four months.
covering the july through september period
however
since we last reported earnings, it's also important to acknowledge.
given it has been four months since we last reported earnings
acknowledge the strength as expected in our gun.
it's also important to acknowledge the strength
results.
as expected in our june results
on our performance over the four-month transition period, and in
based on our performance
increased visibility into the remainder of the calendar year.
over the four month transition period and increased
visibility into the remainder of the calendar year
are raising and tightening our CY26 outlook.
from eighteen dollars to eighteen dollars and sixty cents.
we are raising and tightening our cy twenty twenty six outlook
to eighteen dollars
The midpoint of this range implies.
to eighteen point six zero dollars
the midpoint of this range
implies 23% adjusted earnings per share growth.
implies twenty three percent adjusted earnings per share growth
year over year for the full year. Additionally,
year over year for the full year
we expect to generate approximately four buildings.
additionally
we expect to generate approximately
billion dollars in adjusted free cash flow this calendar year.
four billion dollars in adjusted free cash flow
year. Consistent with our strategy,
this calendar year
strategy, BDB service drove the majority of work quarters.
consistent with our strategy
b2b service
revenue growth, reflecting strong execution by our company.
drove the majority of our quarterly revenue growth
reflecting strong execution by our commercial and operations teams
commercial and operations teams. Our expanding capability.
capabilities across key verticals, enabling us to address.
our expanding capabilities across key verticals
more of our customers with this technique. I'm locking everything.
are enabling us to address more of our customers' logistic needs
unlocking
air freight demand from traditionally parcel sent to a customer.
air freight demand from traditionally parcel centric customers
customers. For example, we drove a 15.
for example
fifteen-fold increase in aircraft engine moves and one.
we drove a fifteen fold increase
in aircraft engine moves
and one new air freight business
one new air freight business with an AI.
data center customer after more than 40 years.
with an ai data center customer
after more than forty year
largely parcel centric relationship.
largely parcel centric relationship
Differentiation is increasingly
differentiation is
centered on deep customer relationships. And Taylor's
increasingly centered on deep customer relationships
service experiences, positioning us to capture more.
and tailored service experiences
positioning us to capture more freight volume
freight volume as we address customers' needs beyond
parcel. Our network transmission.
as we address customers' needs beyond parcel
our network transformation initiatives remain on track
transformation initiatives remain on track. We now have nearly six.
65% of illegible volume flowing through.
we now have nearly sixty five percent of eligible volume
about 630 network two.
flowing through about six thirty network two point zero
stations. Additionally, we have closed more.
optimized stations
additionally
more than 260 stations.
we have closed more than two sixty stations
Combined with our effective commercial strategy, this net.
combined with our effective commercial strategy
network optimization is leading to tighter capacity utilization.
utilization across our surface network. We continue.
this network optimization is leading to tighter capacity utilization
across our surface network
continue to expect network to auto progress to translate.
we continue to expect network two point zero progress
to nearly one billion dollars of network to auto and
to translate to nearly
one billion dollars of network two point zero
and associated one fat X savings by the end of this calendar.
and associated onefedex savings
calendar year, and they cumulative two billion dollars.
by the end of this calendar year
and a cumulative
by the end of 2027.
two billion dollars
by the end of twenty twenty seven
In Europe, we are replacing a fragmented.
in europe we are replacing a
domestic structure with a lean, digitally enable.
fragmented domestic structure
with a lean
digitally enabled network built for high margin cross border flow
enabled network built for high margin cross-border flow.
and long term european market competitiveness
and long term European market competitiveness.
This includes simplifying the service we provide our customers.
this includes simplifying the service we provide our customers
and operating as one integrated modernized network.
and operating as one integrated modernized network
network. In January, we announced the plan.
in january we announced the
transformation program for our domestic french operations
transmission program for our domestic French operations.
and we recently finished our social consultation process there.
there. As of this month, we closed 17.
and we recently finished our social consultation process there
as of this month
seventeen French stations. We also modernize two hubs.
we closed seventeen french stations
hubs and sixteen key stations with advanced sorting or
we also modernized two hubs
and sixteen key stations
automation and equipped 32 facilities with.
with advanced sorting automation
and equipped
with new tracking and visibility technology.
thirty two facilities with
new tracking
and visibility technology
In Italy, similar to France, we have fundamental.
fundamentally simplifying our operating model to prioritize how.
in italy similar to france
we are fundamentally simplifying our operating model
higher value international B2B and export services.
to prioritize higher value international b2b and export services
As part of this process, we are transitioning from an eight-hub for.
as part of this process
footprint to a highly streamlined three-hub model.
are transitioning from an eight hub footprint
actively reducing our station count. In June,
to a highly streamlined three hub model and actively reducing our
station count
we reached an important milestone when we consolidated two mila.
in june we reached an important milestone when we consolidated
Milan area stations into a newly upgraded facility.
two milan area stations
into a newly
that allows us to optimize our pickup and delivery within one of them.
upgraded facility that allows us to optimize
the most densely populated areas of the country.
our pickup and delivery within one of the most densely populated areas of the country
Taking these examples together, we are re-engineered.
taking these examples together
re-engineering the region for service and profitability at the right scale.
we are reengineering the region for service and profitability at the right scale
While a transformation of this size takes time, we are on track.
while the transformation of this size takes time
track to achieve our target of 650 million dollars.
we are on track to achieve our target
European improvement in international adjusted operations.
of six fifty million dollars europe driven improvement in international
operating income by end of 2029.
adjusted operating income by end of twenty twenty nine
The size and scope of our global end.
the size and scope
end-to-end network, combined with the vast amount of data we generate.
of our global end to end network combined with a vast
amount of data we generate
allows us to provide customers with actionable insights and visibility.
tools to better manage their own supply chains.
allows us to provide customers with actionable insights and visibility tools
to better manage their own supply chains
These interactions, in turn, present us with incremental
these interactions in turn
incremental revenue opportunities, creating an unrivaled.
present us with incremental revenue opportunities
unrivaled virtuous cycle. Demonstrating the unique.
creating an unrivaled virtuous cycle
unique power of our physical and digital networks, we recently announced.
demonstrating the unique power of our physical and digital networks
announced a collaboration with the U.S. Army. Our team of
we recently announced a collaboration with the u s army
logistics and technology experts is supporting a sweeping modernization.
our team of logistics and technology experts
modernization of the army's US non-tactical logistics.
is supporting a sweeping modernization
networks. Supply chain procedures and organic.
the army's us non tactical logistics networks
industrial base sites. This is just one example of.
supply chain procedures and organic
industrial based sites
our leadership role in logistics or cost training, which we
this is just one example of our leadership role
in logistics orchestration
view as a new market opportunity that complements traditional.
which we view as a new market opportunity that complements
traditional shipping business. When it comes to physical AI,
our traditional shipping business
AI, our network is already one of the most automated in the world.
when it comes to physical ai
our network is already one of the most automated in the world
We are making notable strides in automating our.
or load and unload operations. To help create a
we are making notable strides
in automating our load and unload operations
a safer and more efficient environment for our team members.
to help create a safer
and more efficient environment
members. For example, in collaboration with Dexter.
for our team members
Servity, we are deploying robotic.
for example in collaboration with dexterity
we are deploying robotic loaders
loaders at our Hagerstown Maryland hub.
support peak and post-peak operations. Allowing
at our hagerstown maryland hub to support peak
and post peak operations
allowing us to prove this technology in the coming months.
As we head into Peak, I want to thank Dean.
allowing us to prove this technology in the coming months
FedEx for the continued hard work.
as we head into peak i want to thank team fedex
for their continued hard work
I remain very excited about the momentum in our business as we
i remain very excited about the momentum in our business
we serve our customers with excellence, generate significant.
as we serve our customers with excellence
generate significant free cash flow
significant free cash flow and create value for our stockholders.
stockholders. Before I turn the call over to Brian,
and create value for our stockholders
bree, I want to welcome Jamil Jackson.
before i turn the call over to brie
i want to welcome jamil jackson
whom we announced on Monday as our next chief.
whom we announced on monday
financial officer, a spectative Nambur 30.
as our next chief financial officer
Jameer brings a wealth of experience at
effective november thirty
having served as CFO at several public companies.
jamere brings a wealth of experience
having served as cfo at several public companies
Most recently, he served as CFO or auto.
AutoZone, where his responsibilities also included leadership.
most recently he served
as cfo of autozone
where his responsibilities also included
leadership of store development, providing a valuable.
leadership of store development
providing a valuable combination of financial and operational experience
valuable combination of financial and operational experience.
I look forward to working with Jamir as we continue to execute.
execute on the strategic priorities, we outlined at our investment.
i look forward to working with jamere as we continue to execute
on the strategic priorities we outlined
at our investor day in february
investa day in February. I also want to offer.
offer my sincere thanks to Claude Russ for his extra.
i also want to offer
my sincere thanks to claude ross
extraordinary leadership as interim chief financial officer.
for his extraordinary leadership
officer. Over the past five months, his commitment to
as interim chief financial officer
FedEx, our team members, and our stockholders.
over the past five months his commitment to fedex
our team members
have helped ensure a seamless transition.
and our stockholders has helped
ensure a seamless transition
while continuing to move our strategic priorities forward.
forward. Claude, thank you for your partnership.
while continuing to move our strategic priorities forward
partnership during this important period. I'm D.
claude thank you for your partnership
during this important period
deeply appreciative. Now, all
i'm deeply appreciative
to Bri. Thank you, Raj. My sincere.
now over to brie
sincere thanks to the team for their outstanding work serving our customers in Q.
thank you raj my sincere thanks to the team for their
Q3 and their tremendous efforts as we prepare for peak.
outstanding work serving our customers in q3
and their tremendous efforts as we prepare for peak
As our results indicate, we are deepening partnerships with customers who value.
value speed, precision, and the capabilities we offer at that act.
as our results indicate we are deepening partnerships with customers who value
speed
precision and the capabilities we offer at fedex
Sedax. Allowing us to profitably grow Q3 revenue by.
by 2.4 billion year over year in a very dynamic.
allowing us to profitably grow q3 revenue
dynamic market. With rapidly evolving global trade policy.
by two point four billion dollars year over year in a very dynamic market
policies and geopolitical development, customers require a trust.
with rapidly evolving global trade policies and geo
trusted partner to help them navigate changing requirements, manage cross.
geopolitical developments customers require a trusted partner to help them navigate
cross-border costs, and maintain resilient supply chains.
changing requirements manage cross border costs
and maintain resilient supply chains
Our end-to-end network, customs and trade expertise, and innovative.
our end to end network customs and trade
integrated technology capabilities uniquely position us to help customers.
expertise and integrated technology capabilities uniquely position us to help
respond with speed, flexibility, and confidence.
customers respond with speed flexibility
confidence. Turning to our Q3 results, revenue was out.
and confidence
up 12%, which includes a four-percentage point boost from fuel.
turning to our q3 results
fuel price driven surcharge revenue. Underlying revenue growth,
revenue was up twelve percent which includes a four percentage point boost
from fuel price driven surcharge revenue
was supported by base yield expansion across both segments.
underlying revenue growth was supported by base yield expansion across both
along with US domestic and international export volume growth.
segments along with u s domestic and international export volume growth
We were particularly encouraged by the strength from our B2B customers.
customers, including the fast growing data center vertical, which supported.
we were particularly encouraged by the strength from our b2b customers
28% year-year growth in international freight revenue.
including the fast growing data center vertical which supported
revenue. Volume trends were broadly aligned with last quarter.
twenty eight percent year over year growth in international freight revenue
quarter. U.S. domestic ADV increased 2% year.
volume trends were broadly aligned with last quarter
over year, driven by 4% growth and U.S. priority volume.
u s domestic adv increased two percent year over year
driven by four percent growth in u s priority
and three percent growth in ground commercial
volume and 3% growth in ground commercial.
Consistent with our strategy to focus on differentiated premiums or
consistent with our strategy to focus on differentiated
services, ground economy volume declined four percent.
premium services ground economy volume declined four percent
For the third consecutive quarter, international export volume increased.
growing 8% year over year. International demand.
for the third consecutive quarter international export volume increased
growing eight percent year over year
domestic volume declined 11%, part of our deliberate strategy to
international domestic volume declined eleven percent
part of our deliberate strategy to focus on higher yielding cross border volumes
to focus on higher yielding cross-border volumes.
Global Air Freight, we are solving customers' most complex challenges.
through specialized premium capabilities. This approach.
within global air freight we are solving customers' most complex
challenges through specialized premium capabilities
is resonating with customers and driving growth in the highest value segment.
this approach is resonating with customers and driving growth in the
segments. For example, with international air freight, we saw.
highest value segments
average daily freight pounds up 15% year over year.
for example with international air freight
we saw average daily freight pounds up fifteen percent year over year
As our market leading yields indicate, we
we remain focused on pricing services for the value we provide to our customers.
as our market leading yields in
customers. While fuel was a meaningful driver of yield improvement,
indicate we remain focused on pricing services for the value we provide to our customers
base yields remain strong. This highlights our continued.
while fuel was a meaningful driver of yield
improvement base yields remained strong
praising discipline in a competitive but rational environment.
this highlights our continued pricing discipline in a competitive
but rational environment
U.S. domestic package yield was up seven percent.
s domestic package yield was up seven percent
driven by mid to high single digit yield growth across all services.
services. International package yield increased to 17%.
driven by mid to high single digit yield growth across all services
Driven by a 16% increase, and international priority.
international package yield increased seventeen percent
priority yield, along with the mixed benefit from reducing lower yielding in.
driven by a sixteen percent increase in international priority yield
international domestic volume. We do expect international.
along with the mix benefit from reducing lower yielding international domestic volume
international yield growth to moderate in 2027 as we lap this mixture.
we do expect international yield growth
shift. Additionally, we are winning share in the
to moderate in twenty twenty seven as we lap this mix shift
global air freight market based on service and our unique end to end.
additionally we are winning share in the global air freight market
solution while growing yield. U.S. domestic freight.
based on service and our unique end to end solutions while growing yield
revenue per pound was up six percent, and international freight revenue.
u s domestic freight revenue per pound was up six percent
and international freight revenue per pound was up eleven percent in q3
revenue per pound was up eleven percent in Q3.
We continue to take a disciplined pricing action to support profit.
profitable growth. This summer, we announced our peak season demand certain.
we continue to take a disciplined pricing action
to support profitable growth
surcharges, which enable us to provide outstanding customer service.
this summer we announced our peak season demand surcharges
throughout the peak season, while, of course, protecting profitability.
which enable us to provide outstanding customer service throughout the peak season
while of course protecting profitability
We also implemented our first ever European domestic.
demand surcharge tied to peak. And last month, we
we also implemented our first ever european domestic
domestic demand surcharge tied to peak
announced a general rate increase of 5.9%, effective change.
and last month we announced a general rate increase of five point nine percent
effective january fourth
January 4th. We expect strong capture from these pricing acts.
actions. I am very excited about our.
we expect strong capture from these pricing actions
outstanding Q3 results and continued momentum driven by our strategy.
i am very excited about our outstanding q3 results
and continued momentum driven by our strategic focus on b2b and premium b2c
strategic focus on B to B and premium B to C verticals.
verticals
Take automotive as one example. 12 months ago, we began.
take automotive as one example
began our journey to unlock a larger share of the automotive production market.
twelve months ago we began our journey to unlock a larger share of the automotive
market, and build out our end-to-end capabilities to better serve this sector.
sector. We quickly assembled a dedicated automotive team and create.
production market and build out our end to end capabilities to better serve this sector
created a specialized model that combines 24 by 7 support.
we quickly assembled a dedicated automotive team and created a
specialized model that combines twenty fourseven support
Flexible global pickup capabilities. Enhanced visibility.
flexible global pickup capabilities enhanced visibility
visibility and integrated logistic solutions tailored to the customer's.
and integrated logistics solutions tailored to the customers' needs in automotive
needs in automotive. This team has since onboarded 3.
major automotive customers to these value-added services.
this team has since onboarded thirteen major automotive customers to these
delivering long-term profitable revenue growth within this protocol.
value added services delivering long term
Within our FedEx Legacy science as organization.
profitable revenue growth within this vertical
We have now achieved 30 IADS barma sort of.
within our fedex life sciences organization we have now
achieved thirty iata sieve
pharmaceutic across our global air hubs and cargo handling facilities.
This is a major milestone, and supports our strong position in the health.
pharma certifications across our global air hubs and cargo handling facilities
healthcare transportation market.
this is a major milestone and supports our strong position in the healthcare
transportation market
are also solving broader customer challenges using our expertise in global.
we are also solving broader
global trade and digital intelligence. Last month, we launched.
customer challenges using our expertise in global trade and digital intelligence
Global Trade Navigator, a great example of how we are making supply chains.
last month we launched global trade navigator
chains smarter for everyone. By surfacing duties,
a great example of how we are making supply chain smarter for everyone
duties, taxes, documentation requirements, and potential clearances.
by surfacing duties taxes
issues earlier in the shipping journey. Global trade navigator.
documentation requirements and potential clearances
reduces complexity, improves cost transparency.
issues earlier in the shipping journey global trade navigator reduces complexity
and helps businesses expand across borders with confidence.
improves cost transparency and helps businesses expand across
Early adoption has been strong. Thousands of customers.
borders with confidence
customers use this new suite of capabilities through FedEx.com and our API.
early adoption has been strong thousands of customers use this new
API suite. We also expect this enhanced customer.
suite of capabilities through fedex dot com and our api suite
experience to help reduce our clearance costs by improving data quality.
we also expect this enhanced customer
quality and reducing manual intervention.
experience to help reduce our clearance costs by improving data quality
and reducing manual intervention
Additionally, we continue to support customers through AEPA refund.
additionally we continue to support customers
refund process. And we remain committed to distributing these refunds.
through eipa refund process and we remain committed to
as quickly as possible. For customers seeking.
distributing these refunds as quickly as possible
seeking greater security and control over deliveries, we recently introduced.
for customers seeking greater security and control over deliveries
introduced Fat Act's authenticated delivery. It's a new paid delivery.
we recently introduced fedex authenticated delivery
delivery upgrade for customers in the United States and Canada.
it's a new paid delivery upgrade for customers in the united states and canada
solution expands our proof of delivery portfolio with a secure digital.
this solution expands our proof of delivery
digital verification process using a QR code to help ensure.
with a secure digital verification process using a
packages are released only to an authorized recipient.
qr code to help ensure packages are released
only to an authorized recipient
This is providing an additional layer of protection for high value and sensitive.
sensitive shipments. These examples are strengthened.
this is providing an additional layer of protection for high value and sensitive
shipments
strengthening our competitive positioning and set us up to deliver outstanding service.
these examples are strengthening our competitive
service throughout the upcoming peak season, and of course, well beyond.
and set us up to deliver outstanding service
throughout the upcoming peak season and of course well beyond
Turning to our revenue outlook for CY26.
CY26. We now expect 12% full year revenue.
turning to our revenue outlook for cy twenty twenty six
revenue growth, including approximately four percentage points for fuel price.
we now expect twelve percent full year revenue growth
price driven surcharge revenue. And we expect current volume and
including approximately four percentage points for fuel price driven surcharge
revenue
and yield trends to remain directionally similar to Q3. With some
and we expect current volume and yield trends
some moderation in year over year, US domestic volume growth, given tough.
to remain directionally similar to q3 with some moderation in year
tough comps. This outlook implies.
over year u s domestic volume growth given tough comps
a 10% revenue growth in Q4 with US domestic revenue up.
this outlook implies
up high single digits, including three points from fuel price.
a ten percent revenue growth in q4 with u s domestic revenue up
price-driven surcharge revenue. And international up high teams.
high single digits including three points from fuel
price driven surcharge revenue
teams, including seven points from fuel price driven zero revenue.
and international up high teens including seven points
revenue. We will remain very disciplined on pricing.
from fuel price driven surcharge revenue
we will remain very disciplined on pricing
pricing. We expect us to stay mid-single digit to climb and group.
economy, and double digit decline in international domestic volume.
we expect a sustained mid single digit decline in ground
volume in Q4, as we continue our efforts to improve our service now.
economy and double digit decline in international domestic volume in q4
max. With a significant majority of our network 2.0.
as we continue our efforts to improve our service mix
conversion work complete, heading into peak. I know that the team at Fat.
with a significant majority of our network two point zero conversion work
FedEx is ready to deliver superior service for our customers.
complete heading into peak i know that the team at fedex is ready to deliver
and continued strong financial results for our investors. And with that,
superior service for our customers and continued strong financial results
for our investors
I'll now turn it over to Claude. Thank you.
and with that i'll now turn it over to claude
Bri, by strategically shifting our revenue mix toward higher yielding.
thank you bertie best
services and lowering our cost to serve. We grew operating income.
strategically shifting our revenue mix toward higher yielding services and lowering our cost
in Q3 and remained firmly on track to achieve our 2029.
to serve we grew operating income in q3 and remain firmly on track
financial targets. Our strong operating results, coupled with.
to achieve our twenty twenty nine financial targets
with a discipline approach to capital expenditures, are driving robust.
our strong operating results coupled with a
robust free cash flow and enhancing stockholder returns.
disciplined approach to capital expenditures are driving robust
free cash flow and enhancing stockholder returns
Turning through our results in more detail, on a consolidated
turning to our results in more detail
basis in Q3, we delivered $3.74.
on a consolidated basis in q3
cents in adjusted earnings per share. Up 28%.
we delivered three point seven four dollars
in adjusted earnings per share
year over year. Continued core yield strength.
up twenty eight percent year over year
continued core yield strength
Favorable trends from B2B parcel and air for eight. Benefits.
favorable trends from b2b parcel and air freight
from transformation initiatives and a lower effective tax rate.
supported these results. Consolidated, adjusted operating income.
benefits from transformation initiatives and a lower effective tax rate
income, increase $164 million. Our six team.
supported these results consolidated adjusted operating income
increased one hundred and sixty four million dollars
16% for Q3. Despite a hundred million dollars, you're
or sixteen percent for q3
year over year headwind from our recent power agreement, in a seventy.
despite one hundred million dollars year over year headwind
from our recent pilot agreement
75 million dollar headwind from variable incentive compensation.
and a seventy five million dollars headwind
from variable incentive compensation
While fuel price driven increases in surcharges, drove.
higher revenue. They were not a material driver of the year over year changing.
while fuel price driven increases in surcharges drove
change in our adjusted operating income in the quarter.
higher revenue they were not a material driver of the year over year change
in our adjusted operating income in the quarter
taking a closer look at our segment performance, you have to mess.
now taking a closer look at our segment performance
Domestic delivered higher Q3 adjusted operating income years.
u s domestic delivered higher q3 adjusted operating income
year over year of 67 million dollars, or 7%.
year over year
percent despite a headwind from higher over the road Lion Hall.
up sixty seven million dollars or seven percent
purchases transportation rates. The unique pressures in US.
despite a headwind from higher over the road line haul purchase
transportation rates
U.S. domestic purchase transportation rates are largely tied to.
the unique pressures in u s domestic purchase transportation rates
the broader tightening in the labor market for truck drivers from recent regular.
are largely tied to the broader tightening in the labor market for truck drivers
regulatory changes. Adjusted operating margin declined.
from recent regulatory changes
20 basis points, driven by higher fuel price impacts.
adjusted operating margin declined twenty basis points
driven by higher fuel price impacts
which represented a 30 basis point headwind to Q3 adjustment.
adjusted operating margin. Turning to our international business.
which represented a thirty basis point headwind
to q3 adjusted operating margin
business, we delivered a hundred one million dollar year over year.
turning to our international business
we delivered a one hundred and one million dollars
increase in adjusted operating income. 52%.
year over year increase in adjusted operating income
year over year with 80 basis points of margin expansion.
up fifty two percent year over year
expansion. This robust adjusted operating income and margin.
with eighty basis points of margin expansion
margin performance was driven by continued strong base pricing.
this robust adjusted operating income and margin performance
was driven by continued strong base pricing
higher international export volume and airframe weight.
out of Asia and the US. I'm encouraged that our taco.
and higher international export volume and airfreight weight
primarily out of asia and the u s
colour strategy is driving better capacity utilization for B.
i'm encouraged that our tri color strategy is driving better
utilization
B2B air freight services. This strong international performance.
for b2b air freight services
performance demonstrates that our strategy, though still in the early innings,
this strong international performance demonstrates that our strategy
though still in the early innings
is working. And highlights the opportunity ahead to drop greater.
is working and highlights the opportunity ahead
profitability and ultimately stronger stockholder returns.
to drive greater profitability
returns. Moving to capital allocation, free cash.
and ultimately stronger stockholder returns
moving to capital allocation
flow growth is the bedrock of our capital returns framework.
free cash flow growth is the bedrock of our capital returns framework
In deploying this cash, we continue to take a balanced approach.
in deploying this cash
approach across dividends, stock repurchases, and strategic growth.
we continue to take a balanced approach across dividends
growth investments. Since June, we repurchased $2 billion.
stock repurchases and strategic growth investments
dollars of FedEx stock. We have an additional 4.3 billion dollars.
since june we repurchased two billion dollars of fedex stock
we have an additional
billion dollars in Babak authorization from the board of directors.
four point three billion dollars in buyback authorization
and plan to continue to re-purchase stock opportunistically.
from the board of directors and plan to continue to repurchase stock
opportunistically
Since FY13, we have reduced our share count.
by 25%. With a six-billion dollar adjusted.
since fy twenty thirteen we have reduced our share count
by twenty five percent
adjusted free cash flow target by the end of 2029.
with a six billion dollars adjusted free cash flow target
by the end of twenty twenty nine
will allocate capital prudently in support of value creation.
creation for our stockholders, we continue to expect three points.
we will allocate capital prudently in support of value creation
for our stockholders
3.9 billion dollars of CapEx for CY26.
we continue to expect three point nine billion dollars of capex
for cy 'twenty six
which 90% is maintenance or efficiency related.
of which ninety percent
is maintenance or efficiency related
We remain committed to our 4% CapEx to revenue targets.
target by the end of 2029, and for aircraft, CapEx.
we remain committed to our four percent capex
to revenue target by the end of twenty twenty nine
to remain at one billion or less annually.
and for aircraft capex to remain at one billion dollars or less annually
Our targeted strategy to grow B2B and premium B2C services.
our targeted strategy to grow b2b and premium b2c
services enables us to utilize our existing capacity.
services
to facilitate volume growth, which supports the stained lower.
enables us to utilize our existing capacity
to facilitate volume growth
lower CapEx intensity. Our 19.9%.
which supports sustained lower capex intensity
retained ownership stake in FedEx Free also provides.
our nineteen point nine percent retained ownership stake
in fedex freight
provides meaningful optionality. To preserve the taxes,
also provides meaningful optionality
tax-efficient status of the separation, we were required to monetize.
to preserve the tax efficient status of the separation
monetize the stake within 24 months of the spend date.
we are required to monetize the stake within twenty four months
of the spend date
will deploy this capital to maximize value creation.
we will deploy this capital to maximize value creation
Overall, our credit worthiness and balance sheet remain resilient.
As demonstrated, our 3.5 billion dollar bond.
overall our creditworthiness and balance sheet remain resilient
as demonstrated
bond offering in the quarter, which was multiple times over subscribers.
by our three point five billion dollars bond offering in the quarter
subscribe. Moving to Outlook, we are introducing a
which was multiple times oversubscribed
a CY26 adjusted free cash flow outlook.
moving to outlook we are introducing a cy26
of approximately four billion dollars. Free cash flow anchor.
adjusted free cash flow outlook of approximately four billion dollars
anchors our decision making, and we believe should guide any assessment.
free cash flow anchors our decision making
assessment of our company's intrinsic value.
and we believe should guide any assessment
of our company's intrinsic value
our transition from a fiscal to calendar year reporting cycle,
given our transition from a fiscal to
calendar year reporting cycle
we have now disclosed our q1 adjusted eps
We have now disclosed our Q1 adjusted EPS.
was three point two five dollars
was three dollars and twenty-five cents. Up sixteen percent, you're
up sixteen percent year over year and q2 adjusted eps
over year. And Q2 adjusted EPS was four dollars.
dollars and 98 cents. 56% year over year.
was four point nine eight dollars
up fifty six percent year over year
q2 included
year. Hu2 included $2 and 3 cents.
cents of adjusted EPS for the month of June. Supported.
two point zero three dollars of adjusted eps
supported by one extra operating day, and healthy U.S.
for the month of june supported by
one extra operating day
domestic demand. Hopefully, part by timing ship from
and healthy u s domestic demand
July in sales by retailers.
helped in part by a timing shift from july in sales by retailers
this year to date performance, and factoring in updated tax rate.
given this year to date performance
and share count assumptions. We are raising and heightening our
and factoring in updated tax rate and share count assumptions
we are raising and tightening our cy twenty six
CWA 26, adjusted EPS outlook range.
adjusted eps outlook range
to $18 to $18 and 60 cents.
to eighteen dollars to eighteen point six zero dollars
As we shared, we expect consolidated CY27.
CY26 revenue growth to be approximately 12%.
as brie shared we expect consolidated
cy 'twenty six revenue growth
including about four percentage points of assumed fuel price-driven search.
to be approximately twelve percent including about four percentage points
surcharge benefit. For the full year, we expect adjusted options.
of assumed fuel price driven surcharge benefit
operating margin to be up slightly year over year, despite the
for the full year we expect adjusted operating margin to be up
slightly year over year
fuel-related impact. Additionally, we expect our CWAT.
despite the fuel related impact
26, affected tax rate, to be approximately 22.
additionally expect our cy twenty six effective tax rate
to be approximately twenty two point five percent
and a half percent, down 50 basis points from our priority.
assumption. A revised CY26, a
down fifty basis points from our prior assumption
our revised cy twenty six
adjusted operating income bridge
adjusted operating income bridge, shows the key year of year element.
elements embedded in our outlook. This bridge reflects.
shows the key year over year elements embedded in our outlook
reflects adjusted operating income of 5.9 billion dollars.
this bridge reflects adjusted operating income
dollars, equivalent to $18 and 30 cents.
of five point nine billion dollars
equivalent
to eighteen point three zero dollars of adjusted eps
adjusted EPS, the midpoint of our range.
the midpoint of our range
In this scenario, volume-related rebano net of.
in this scenario volume related revenue
variable costs, is now expected to be an 800 million dollars.
net of variable cost
tailwind in CYWA 26. Of 200 million.
is now expected to be an eight hundred million dollars tailwind in
cy twenty twenty six
million compared to the estimate we shared in June.
up two hundred million dollars compared to the estimate we shared in june
change is driven by the strong year-to-date friends as our commercial team.
team captured increased demand from the most premium BW.
this change is driven by the strong year to date trends
as our commercial team captured increased demand
verticals of the global economy. With respect to you,
from the most premium b2b verticals of the global economy
yield, we continue to expect a 3.7 billion hours.
with respect to yield we continue to expect
tailwind. This benefit demonstrates our ongoing commitment.
a three point seven billion dollars tailwind
commitment to improve our service mix and base pricing capture.
this benefit demonstrates our ongoing commitment to improve our service mix
and base pricing capture
Consistent with prior practice, our base yields do not.
consistent with prior practice our base yields
do not factor in revenue
not factor in revenue from the fuel price-driven search order.
benefit, which we assume will be neutral to full year adjusting.
from the fuel price driven surcharge benefit
adjusted operating income results. It also does not factor in.
which we assume will be neutral to full year
adjusted operating income results
it also does not factor in revenue
in revenue from currency exchange rate effects.
from currency exchange rate effects
For basic spencers, we now assume two.
for base expenses we now assume
2.7 billion dollars in higher costs, year over year.
two point seven billion dollars in higher costs year over year
compared to the 2.6 billion dollar headwind, we shared.
compared to the two point six billion dollars headwind
it on our June bridge. This change primarily relates.
we shared on our june bridge
relates to higher purchase transportation rates. As a reminder,
this change primarily relates
to higher purchase transportation rates
this bar continues to embed higher wage rates.
as a reminder this bar continues to embed
rates and other inflationary factors. As well as the ongoing.
higher wage rates and other inflationary factors
structural cost reduction efforts, including savings from our network.
as well as the ongoing structural cost reduction efforts
network 2.0 transformation. I will note that our yield.
including savings from our network two point zero transformation
versus basic spin increase assumptions represent a 100%.
i will note that our yield versus base expense increase assumptions
basis point spread, which signals our focus on revenue quality.
represent a one hundred basis point spread
which signals our focus on revenue quality
and rigorous cost management
quality and rigorous cost management. We continue.
continue to expect verbal and sentiment of compensation to be an 800 million dollar.
we continue to expect variable incentive compensation
headwin, reflecting our commitment to rewarding employees.
to be an eight hundred million dollars headwind
for their outstanding performance. We are still anticipating.
reflecting our commitment to rewarding employees
their outstanding performance
a $200 million headwind from our new pilot agreement.
we are still anticipating a two hundred million dollars headwind
from our new pilot agreement
Additionally, we are pleased with our progress towards removing stranded calm.
cost related to the FedEx freight spin-off, and continue to fork it.
additionally we are pleased with our progress towards removing stranded costs
related to the fedex freight spin off
forecast a $100 million benefit by the end of CY22.
continue to forecast
CY26. Our embedded Q4 adjusted EPA.
a one hundred million dollars benefit by the end of cy twenty twenty six
EPS range is six dollars and three cents to six dollars and fifty.
our embedded q4 adjusted eps range
is six point three dollars
degree cents. Results will depend upon yield.
to six point six three dollars
results will depend upon yield
service mix, and continued traction on cost reduction initiatives.
which are highly correlated with peak season demand.
service mix and continued traction on cost reduction initiatives
which are highly correlated
with peak season demand
While we expect consolidated, adjusted operating income to be up year.
year. We anticipate several transitory headwinds.
while we expect consolidated adjusted operating income
to be up year over year
headwinds that will pressure our results, including 130 million.
we anticipate several transitory headwinds that will pressure our results
million tied to higher over-the-road line hole rates.
including one hundred and thirty million dollars
tied to higher over the road line haul rates
which shows up in purchased transportation. $100 million.
which shows up in purchased transportation
due to our recently ratified pilot agreement, and 80 million dollars.
dollars one hundred million due to our recently ratified pilot agreement
dollars in aircraft maintenance expense.
and eighty million dollars in aircraft maintenance expense
International, we forecast Q4, adjusted operating margin expands.
for international we forecast q4
expansion year over year. We expect Q4 adjusted US domestic.
adjusted operating margin expansion year over year
operating margin to be down moderately, year over year, due to higher.
we expect q4 adjusted u s domestic operating margin to be down moderately
year over year
purchase transportation rates, I just mentioned, and they continued fuel.
due to higher purchase transportation rates i just mentioned
fuel impact. Importantly, we believe this pressure is transitory.
and the continued fuel impact
And as we look to 2027, we forecast full year adjusted.
importantly we believe this pressure is transitory
US domestic operating margin to be up year over year.
as we look to twenty twenty seven we forecast full year adjusted u s
domestic operating margin to be up year over year
We expect our CWA 26 Q4 average share.
share count to be approximately 238 million shares.
we expect our cy twenty six
q4 average share count
shares. In closing, our business results a decisive action.
to be approximately two thirty eight million shares
actions to drive stockholder value in the quarter, signal our competence.
in closing our business results and decisive actions to drive
confidence in the value creation opportunity ahead. Our strategy.
stockholder value in the quarter signal our confidence
in the value creation opportunity ahead
strategy is sound, and I am confident in our continued execution.
our strategy is sound and i'm confident in our continued execution
With that operator, let's open it up for questions.
with that operator let's open it up for questions
we will now begin the question and answer session
We will now begin the question and answer session. To ask
a question, you may press star then one on your touch tone phone.
phone. If you're using a speaker phone, please pick up your hand.
handset before pressing the keys. To withdraw your question,
please press star then two. Please limit yourself.
yourself to one question. At this time, we will pause momentarily.
momentarily to assemble our roster.
Our first question, come on.
from Risha Harnay with Deutsche Bank, please go ahead.
our first question comes from rishi harnane with deutsche bank
please go ahead
Hey, thanks everyone for the time.
So maybe we can start with one to a brief. Brie, you discuss.
hey thanks everyone for the time
so maybe we could start with one for brie brie you discussed
competitive but still strong pricing environment
a competitive but still strong pricing environment. I'm not sure if you can.
unpack that some more. How much was the field tail went to headline? How much was
i'm not sure if you can unpack that some more how much was the fuel tailwind to headline yield
core up? He said 12% revenue. I look for the years a 4%.
point goose from fuel, but curious, you know, what it was in Q3 and then.
how much was core up i know you said twelve percent revenue outlook for the year assumes
a four percentage point boost from fuel but curious what it was in q3
then, you know, on the year over year improvement, you know, very impressive. EPS.
EPS growth. But margins in the domestic market did stall a bit in the quarter.
and then on the year over year improvement very impressive eps growth
but margins in the domestic market did stall a bit in the quarter
claude it sounds like
Claude, it sounds like you know there is some headwinds from mine holiday.
Ray and PT that are creeping into Q4 as well.
there is some headwinds from line haul rate in pt
that are creeping into q4 as well but
talk about
You might need a comment.
that 2027 margins could be still up year over year. We can look forward to that.
how much those were and you made a comment that twenty twenty seven margins could be
still up year over year we can look forward to that in the domestic market just like
in the domestic market. Just like, how should we expect them to roll off and what are some off.
offsets we can look forward to in 2027? Thank you.
how should we expect them to roll off and what are some offsets we can look forward to in twenty twenty seven thank you
Risha, thank you for the question. I'll cover pricing and then I'll.
I'll turn it over to Claude to answer the second part of your question. I think.
tricia thank you for the question i'll cover pricing and then i'll turn it over to claude
from a headline perspective, we continue to see that calendar 20.
answer the second part of your question i think from a headline
perspective we continue to see that calendar year twenty six
26 has an improved pricing environment over calendar year 2016.
has an improved pricing environment over calendar year twenty twenty five it is
25 is competitive but rational. From a yield perspective,
perspective here in the United States, we were very pleased with the base yield.
competitive but rational from a yield perspective here in the united
states we were very pleased with the base yield growth which was about half
yield growth, which was about half of our year over year yield grows in the domestic.
domestic niggas. Of that half, the best majority.
of our year over year yield growth in the domestic mix of that half
the vast majority of it was actually base yield we did benefit
of it was actually base yield. We did benefit a little bit.
from some self-help in the mix. And what do I mean by that?
from some self help in the mix and what do i mean by that we
consciously focused on premium e-commerce. So when you look at the home.
delivery and ground economy volume, it's really important to understand that the ground economy.
consciously focused on premium ecommerce so
when you look at the home delivery and ground economy volume mix
it's really important to understand that the ground economy volume was down four percent
economy volume was down four percent, and that was intentional.
really lean into the premiums. So we feel really good about the domestic.
and that was intentional as we really lean into the premium so
we feel really good about the domestic
domestic pricing environment. When you look at the international
export yield increase, it was also really strong.
pricing environment when you look at the international ex
export yield increase it was also really strong
About half of that was fuel. Of the other half, you've got two prime.
primary factors. One was we saw a great mixed shift.
about half of that was fuel of the other half you've got
two primary factors one was we saw a great mix shift
both incremental volumes coming out of Asia, and then again, a focus.
focus away from international domestics towards entry Europe.
both incremental volume coming out of asia and then again
focus away from international domestics towards intra europe
and international Europe volumes. So we think the market is.
competitive, it's improved over 20-25, and we hear a
and international europe volumes so
really good about the overall performance from the team. What? No, thanks, Brie.
we think the market is competitive it's improved over twenty twenty five
and we feel really good about the overall performance from the team
claude
and thanks for the question. I mean, overall, as Brie said, very pleased with our.
our Q3 results. You think about year today, both our overall market.
thanks brie and thanks for the question i mean it's
brie said very pleased with our q3 results that
margin, our domestic margin, and international margin were all up.
if you think about year to date both our overall margin our domestic
September year to date. I did call out a few things in my prepared remarks.
margin and international margin were all up september year to date
remarks about the transitory nature of a couple headwinds. First and foremost.
i did call out a few things in my prepared remarks about
the transitory nature of a couple of headwinds first and foremost for q3
for Q3, the domestic margin would have been up except for.
the domestic margin would have been up
the fuel surcharge. And then, in addition, we have the $100 million.
except for the fuel surcharge
then in addition we had the one hundred million dollars headwind from our pilot agreement
headwind from our pilot agreement. We had $75 million from Barable.
variable compensation, and we started to see the higher purchase transportation.
we had seventy five million dollars from variable compensation
and we started to see the higher purchase transportation rates that i talked about
transportation rates that I talked about. Those will accelerate into Q4.
I think it's important to note that about 70% of our oversight.
those will accelerate into q4 i think it's important to note that
about seventy percent of our over the road line haul miles
over the road line haul miles are provided by either federal.
or contracted service providers. The remaining 30% is.
are provided by either fedex employees or contracted service providers
the remaining thirty percent is split between rail
split between rail, and then a little over 10% is over the
the road. That's really the miles that we're talking about here.
then a little over ten percent is over the road that's really the
miles that we're talking about here so while not a huge portion of the overall
So, while not a huge portion of the overall miles, do
due to the labor market conditions we talked about, those rates.
miles due to the labor market conditions we talked about
really started going higher as we got into Q3, and we expect that to have a bigger.
those rates really started going higher as we got into q3 and we expect that to
bigger impact during T in Q4. But we have both operational.
a bigger impact during peak in q4 but we have both
operational and commercial levers as we get into CY27 to address.
address that. We're confident both in our overall margin expansion as.
operational and commercial levers as we get into cy twenty twenty seven to address
that we're confident both in our overall margin
well as our US domestic margin expansion plans for QA twenty seven.
27. The next question is from Brian.
expansion as well as our u s domestic margin expansion plans for cy twenty
seven
the next question is from brian ossenbeck with jpmorgan
please go ahead
Osenbeck with J. P. Morgan, please go ahead.
I think Persia Dak.
thanks evening appreciate taking the question
a question. Maybe this is for Raja won't.
won't quite be there for another month or so. But clearly there's a good amount of.
maybe this is for raj i know new cfo won't quite be there for another month or so
but clearly there's a good amount of
dry powder on the balance sheet from all the strategic and
tough decisions you guys have been executing on the last couple of years. So maybe you can walk us through.
dry powder on the balance sheet from all the strategic and
tough decisions you guys have been executing on the last couple of years so
you can walk us through
us through some of the options you have for monetizing the stake in Federal.
screen. And then also, how you would consider the leverage program.
some of the options you have for monetizing the stake in
fedex freight and then also how you would consider the leverage profile
of the business going forward would you consider
profile of the business going forward? Would you consider ramping up?
some of the taking out some additional depth to potentially further?
ramping up some of the taking out some additional debt to potentially further fund
fund the buyback. Thank you.
the buyback
thank you
Thank you, Brian. I'm going to appreciate the question.
thank you brian and we appreciate the
Firstly, it's mental.
firstly as
Mentioned in my remarks, and you heard throughout, that we are focused significantly.
i've mentioned in my remarks and you heard throughout that we are
focused significantly on our free cash flow and we are
significantly on our free cash flow, and we are targeting what's called billion dollars.
dollars of free cash flow this kind of year. And as you know, our goal.
targeting about four billion dollars of free cash flow this calendar year
goals for CY2N and I have a six billion dollar precash fund and
and as you know our goals for cy 'twenty nine have
this is being driven by our performance on our core business.
a six billion dollars free cash flow and this is being driven by our
That's what's driving it. And so we are excited about that.
performance on our core business that's what's driving it
and so we are excited about that because it now gives us
because it now gives us a lot more optionality for us.
a lot more optionality for us and we have an
us, and then we have an opportunity to do now. Significantly focus on our.
to now significantly focus our efforts on our capital allocation
efforts on our capital allocation. And we don't have.
we're to have a north star of making sure that
non-star of making sure that we create a lot of value.
value for our stockholders. Even as evidence by
we create a lot of value for our stockholders
or two billion dollar buyback in this quarter, which is.
even as evidenced by our two billion dollars buyback
is higher than we originally communicated. So we have a lot of opportunities.
in this quarter which is higher than we originally had communicated
opportunities which will look ahead, and this is going to be an important consideration.
we have a lot of opportunities as you look ahead and this is going to be an important
consideration. And I'm going to let Claude just.
consideration i'm going to let
just weigh in on freight monetization and other things.
But the principle is clearly that we now have the optionality now to.
claude just weigh in on freight monetization and other things but
the principle is clearly
make sure that we reward our stockholders. Appreciate it right. As we said, before.
we now have the optionality now to make sure that we reward our stockholders
before, to learn the tax efficient status of the separation, we were
appreciate it raj as we said before to preserve the tax
efficient status of the separation we're required to monetize
stake within twenty four months of the spin date
required a monha at the stake within 24 months of the sin day.
where, as Rod said, we're going to deploy that capital to maximize share.
and whereas raj said we're going to deploy that capital
shareholder value. As I said, last quarter, really, it
to maximize shareholder value as i said
Niraja's leadership were bringing the same level of discipline and rigor to the
last quarter really that rod and raj's leadership were bringing the same level of
discipline and rigor to the balance sheet and shareholder returns
balance sheet and shareholder returns that we've been delivering operationally.
and you know, we'll continue to deploy cash to enhance your holder returns.
that we've been delivering operationally and on the p and l
we'll continue to deploy cash to enhance shareholder returns
returns. The next question is from.
Scott Group with Wolf Research, please go ahead.
the next question is from scott group with wolfe research
please go ahead
Hey, thanks afternoon. So I want to just dig into the fourth core.
hey thanks good afternoon so i want to just dig into the
quarter guide a little bit more. So over 20% earnings.
fourth quarter guide a little bit more so
over twenty percent earnings growth for the year i guess fourth quarter implies
growth for the year. I guess fourth quarter implies like high single digits.
single-digit growth. I know you're talking about some transitory.
close to like high single digit growth i know you're talking about some
headwinds in Q4. Can you just like help us understand why?
transitory headwinds in q4 can you just like
why pilot costs and purchase transportation are transitory?
help us understand why pilot costs and purchase transportation are transitory
like ultimately what i'm trying to figure out is like is this
like, ultimately, what I'm trying to figure out is this high single digit.
exit run rate? Is that the right way to think about 20?
high single digit exit
run rate is that the right way to think about
27, or do you think, like, the earnings growth rate we accelerate more?
like what we saw for the full year. And then, if I can just rise just one particular.
twenty seven or do you think like the earnings growth rate reaccelerates more like what we saw
for the full year and then if i can just raj just one like a
a separate just bigger picture question, like now that we can do more of.
a separate just bigger picture question like
like an apples to apples cop versus UPS, like
now that we can do more of like an apples to apples
comp versus ups like their international margins were
international margins were 15% in Q3. They're talking about 20%.
fifteen percent in q3 they're talking about twenty percent in q4
you guys were at four percent like
and Q4. You guys are at four. Like, what are we doing?
what are we doing to
like
Meaningfully close this gap over time.
we can't.
meaningfully close this gap over time if if it if
we can't
Thanks for the question. I'll start and then on the fourth quarter and then turn it over to Raj.
thanks for the question i'll
mean, first and foremost, you know, we're so continued strong international.
start and then on the fourth quarter and then turn it over to raj
mean and foremost we're assuming continued strong international margin
margin expansion. The headwinds we talked about are primarily.
on the US side. And I've talked about the purchase transportation.
expansion the headwinds we talked about are primarily
on the u s side and i've talked about
the purchased transportation that being one hundred and thirty million dollars which
transportation and that being 130 million dollars, which is significantly higher.
than the Q3 impact. And we believe that we have left.
is significantly higher than the q3 impact
levers to minimize that over time in TY27. So we would expect.
and we believe that we have levers to minimize that over time and see why
expect a higher growth rate in 27 and more flow through.
'twenty seven so we would expect higher growth rates in 'twenty seven and more flow through
we also have the one hundred million dollars pilot agreement
We also have the $100 million pilot agreement. We're also from a
timing perspective. We have, you know, we recognize aircraft maintenance expense.
we're also from a timing perspective we have we've
expense is we induct the engines and do that aircraft maintenance and we
recognized aircraft maintenance expense as we induct the engines and do that aircraft
we have a big hit of 80 million dollars in Q4.
maintenance and we have a big hit of eighty million dollars in q4
the combination of those things gets us, if you were to explore.
so the combination of those things gets us if you were to exclude those our
exclude those, our basic spent increases are up about four percent.
base expense increases are up about four percent
with yield growth, excluding fuel and FX, to be about 4.6%.
a positive spread of 60 basis points. And then from
with yield growth excluding fuel and fx to be about four point six
percent so a positive spread of sixty basis points
farther, from a range perspective, I think it's important to know that we're
and then further from a range perspective think it's important to note
we're talking at the midpoint of the range. One other piece of information I want to.
that we're talking at the midpoint of the range one other
to give you is that a mid-pointed range aligns with our.
piece of information i want to give you is that
with our transition year 26 business plan, and so as we exceed the
the midpoint of the range aligns with our transition year twenty six
midpoint of the range, that will incur additional variable compensation.
business plan and so as we exceed the midpoint of the range
compensation expense. And so it could be up to 100 million dollars.
that will we will incur additional variable compensation expense
and so it could be up to one hundred million dollars of additional variable compensation expense
at the top of the range
additional variable compensation expense at the top of the range.
obviously, that headwind in CY26 will.
and obviously that headwind in cy twenty twenty six
will abate and not be a headwind in CY27. So that's just a little
will abate and not be a headwind in cy 'twenty seven so
more color on why some of these Q4 and even Q3 will not repeat.
that's just a little more color on why some of these q4 and even q3
will not repeat in cy twenty twenty seven
and see why it's only seven from a headline perspective. And Scott.
from a headwind perspective
on your question or international, clearly, that is our upside.
and scott
on your question on international clearly that is our
upside opportunity for fedex and we are absolutely committed
upside opportunity for FedEx, and we are absolutely committed to drawing.
driving profitable growth in the international segment. As demonstrated by
to driving profitable growth in the international segment
as demonstrated by our stellar q3 performance
by our stellar 2-3 performance, 17% revenue growth.
growth and 52% operating growth the over. And we are
of seventeen percent revenue growth and fifty two percent operating growth year over year
and we are in well positioned to achieve our committed target of eight
are in well positioned to achieve our committed target of 8%.
operating margin in CY29. Now, key door strategies.
percent operating margin in cy 'twenty nine now key to our strategy
strategy is winning across a broad base of industry verticals.
healthcare, aerospace, defense, automotive and AI data centers would say.
is winning across a broad base of industry verticals
healthcare aerospace defense automotive
exactly what is happening. And it was pointed out earlier.
and ai data centers which is exactly what is happening
our execution of our tri-colour network is very
and as was pointed out earlier our execution of our tricolor network
strong as we continue to increase flexibility or reliability.
and density in a very, very dynamic world. Now, if
is very strong as we continue to increase
flexibility reliability and density in a very very dynamic world
now any path to substantial success for international
any path to substantial success for international runs through.
runs through europe
we have made
through Europe. And we have made good progress in Europe, driving.
good progress in europe driving significant growth over the last three years
driving significant growth over the last three years.
sense, our network utilization in Europe is quite strong.
in essence our network utilization in europe is
quite strong which now gives us leverage
which now gives us leverage. So, our strategy in Europe is three points.
threefold. Firstly, to reduce structural costs.
our strategy in europe is threefold firstly
to reduce structural costs
our target is to reduce
Our target is to reduce our Italy domestic capacity by 20.
20%. UK domestic capacity by 30%, and friends.
our italy domestic capacity by twenty percent
u k domestic capacity by thirty percent and france by forty percent
by 40%. The second part of our strategy is to improve the mix.
Given the network utilization, we are now focusing our commercials.
second part of our strategy is to improve the mix
given the network utilization we are now
focusing our commercial teams on driving more intercontinental
commercial teams on driving more into continental and intra-European.
intra-European volume and reducing lower yielding into a country volume.
and intra european volume and reducing lower yielding intra country volume
volume. You will note that the intra country volume is down 11%.
in Q3. And further, we will continue to talk.
you will note that the intra country volume is down
eleven percent in q3
target a more B2B mix in Europe. And then, thirdly,
and further we will continue to target
a more b2b mix in europe
thirdly, we will leverage the in-post-commercial relationship so we can focus our.
and then thirdly
we will leverage the in post commercial relationship so we can focus our attention on b2b
attention on B to B by leveraging a best in class partner.
partner for B to C. We are early innings in this journey.
by leveraging a best in class partner for b to c we are
journey, and I'm on track to achieve the 650 million dollars.
early innings in this journey and then on track
dollars in operating profit improvement in Europe by CY29.
to achieve the six fifty million dollars in operating profit improvement in europe
the majority of which will be cost reduction. And one final.
by cy 'twenty nine majority of which will be cost reduction
final point: the international margin of 8% in CYD.
and one final point
the international margin of eight percent in cy 'twenty nine is only a
CY29 is only a way point. We look forward to drawing.
waypoint
driving into double digit mars and turtle from there. Thank you.
we look forward to driving into double digit margin territory from there
thank you
The next question is from Ken Hexter with Bank of America.
America. Please go ahead. Hey, great.
the next question is from ken hoexter with bank of america please go ahead
hey great
you talked about the kind of
You know, you talked about the kind of full year U.S. domain.
domestic margin up year over year in 27. Maybe any thoughts on strength.
full year u s domestic margin up year over year in
stranded costs from FedEx Freight or supply chain or any additional costs.
twenty twenty seven maybe any thoughts on stranded costs from fedex freight or supply chain or
we see coming through from the rest of the network, 2.0.
any additional costs we see coming through from the rest of the network two point zero
You know, I guess just trying to see the ramp that we can see.
see going forward. I think that's a lot of concern given the
i guess just trying to see the ramp that we can see
state of or I guess the fourth quarter outlook you've provided. Thanks.
going forward i think that's a lot of concern given the state of or i guess the
the fourth quarter outlook you've provided
thanks
No, appreciate it. I'll start with that when the
i appreciate it i'll start with that when the
the brake stranding cost. As I talked about last quarter, you know, we started the
the year with the 350 million dollar starting point.
freight stranded costs as i talked about last quarter we started the year
with the three fifty million dollars starting point
and we have done a good job this year and are confident we're going to end this year at the
that 250 million dollars. As I said last quarter, we won't.
and we have done a good job this year and are confident we're
end this year at that two fifty million dollars
will make significant progress in reducing the 250 during season.
as i said last quarter we will make significant progress
CWA 27 from an exit rate perspective. So I'm
in reducing the two fifty during cy twenty twenty seven from an
exit rate perspective so i wouldn't take that as a complete
wouldn't take that as a complete tailwind in 27, but I thought.
tailwind in twenty twenty seven but as i said last quarter would not expect
said, last quarter would not expect to be talking about.
to be talking about the stranded cost pass
the stranded cost, pass 27, and certainly is not included.
assumed to be not assumed as extra cost.
twenty seven and certainly it's not it's assumed to be not assumed as
CY29 targets. If I look beyond the freight station,
as extra costs in our cy twenty twenty nine targets
stranded cost. We're confident, as you talked about, we're absolutely on track.
if i look beyond the freight spending stranded costs we're confident
you talked about we're absolutely on track from a network
a network 2.0 perspective to get our.
two point zero perspective to
you know, the two billion dollars, not the end of CY 27.
get our the two billion dollars by the end of cy twenty twenty seven
And then, you know, overall, we would expect the variable comp and not the
and then overall we would expect the
variable comp to not be a headwind in cy twenty twenty seven so i'll just reiterate
headwind in CY27. So I'll just reiterate, you know, obviously not here to give an.
an exact number. Talk about 27. We're still working through that point.
plan, but we are committed to both overall and segment margin.
not here to give an exact number talk about twenty seven
still working through that plan but we are committed to both overall and
segment margin expansion in cy twenty seven
expansion in TY27.
The next question is from Chris Wutherby with Wells Fargo. Please go ahead.
ahead. Thanks for that for maybe.
the next question is from chris wetherbee with wells fargo please go ahead
if we could think a little bit about the early pieces of the bridge.
hey thanks good afternoon
maybe if we could think a little bit about the early
for 2027. Obviously, you guys have talked about network 2.0.
pieces of the bridge for twenty twenty seven obviously
2.0, which I think is another billion dollars in 27. Roger just mentioned.
you guys have talked about network two point zero which i think is another one billion dollars in twenty twenty seven
a couple times the $650 million from proof in their national year.
Europe specifically, I don't know how much of that kind of shows up in 2027.
raj you just mentioned a couple of times the six fifty million dollars for improvement in international
specifically don't know how much of that kind of shows up in twenty twenty seven and then
and then maybe they round it all out. I guess, you know, breeze, you think about that long.
longer term volume target you guys laid out through 2029.
maybe to round it all out i guess brie as you think about that longer term volume
Is 27 a better year for volume growth? It seems on the international.
target you guys laid out through twenty twenty nine is twenty seven up
side. There's some decent tail ones that start to pick up here. Not exactly sure how you.
better year for volume growth it seems on the international side there's some decent tailwinds that have started to pick up here
think about the domestic piece, but maybe sort of putting all those together if you can give us some rough sense.
not exactly sure how you think about the domestic piece but maybe sort of putting all those together if you can give us some rough
of how that might play. Yeah, I also articulate.
sense of how that might play
yes i'll start and then turn it over to brie
over to Bree. I've talked about a lot of the items, a couple additional items that I'll.
I'll add is you gotta remember, we'll still have the power.
i've talked about a lot of the items a couple of additional items that i'll add is
contract in the first half of CY27, so that headwind will abandon.
you got to remember we'll still have the pilot contract in the first half
abate in the second half. Also, if you look all the way to Q4, of
of cy twenty twenty seven so that headwind will abate in the second half
next year, we'll have one less operating day. So, that'll be another, you know, 100%.
also if you look all the way to q4 of next year we'll have one less operating day
150 million plus headwind. And then, like I said, very
that'll be another one hundred and fifty million dollars plus headwind
variable comp will not be a headwind in CWI 27. But
and then like i said variable comp will not be a headwind in cy twenty twenty seven
I'll turn over to Bree to talk the second part. Do you think Black?
but with that i'll turn it over to bree to talk the second part
sure thanks claude so right now we are committed
Lad. So right now, we are committed to our 4% growth.
growth beyond CY26 that we discussed in the February.
to our four percent growth beyond cy twenty
six that we discussed in the february investor day i wanna
investor day. I want to be clear that 4% is excluding.
any fuel surcharge, so that really is core growth.
clear that four percent is excluding any fuel surcharge so that really is
core growth four percent is two percent volume two
percent is two percent volume, two percent yield. We want to do about fifteen.
50 percent or more in B to B. And we
yield we want to do about fifty percent or more
in b2b and we really want to stick
we really want to stick to that right now because it allows our commercial teams to stay.
disciplined. It allows us to focus on the highest end of the market.
to that right now because it allows our commercial teams to stay disciplined
which is you just saw we are doing quite well. We grew commercial.
it allows us to focus on the highest end of the market which is
ground volume much faster than our primary competitor in the
just how we are doing quite well we grew commercial ground volume
much faster than our primary competitor in the overall market
overall market. It allows us to lean into the premium end of gas.
the premium end of healthcare and the AI and data center markets.
allows us to lean into the premium end of gas the
premium end of healthcare and ai and data center market so
So right now we're going to stay the course with that 4%, but I am excited.
extremely pleased that the team is beating that right now with just a
right now we're gonna stay the course of that four percent but i am
incredibly disciplined execution.
extremely pleased that the team is beating that right now with just
incredibly disciplined execution
next question is from Ari Rosa with Citigroup, please go ahead.
the next question is from ari rosa with citigroup
please go ahead
Hi, good evening. Um, we may.
hi good evening
you could discuss peak extra potations and just kind of how things are changing.
brie maybe you could discuss peak expectations and just kind of how things
shaping up from a macro standpoint. As you go and have conversations with customers.
customers, both domestically and internationally.
are shaping up from a macro standpoint as you go out and have conversations with customers
what they're saying are they optimistic, or their concerns about kind of two.
both domestically and internationally what what they're saying are they
price denting delay? Just give us your, give us a little bit of that.
optimistic are there concerns about kind of fuel price
of kind of that dynamic there. Thank you.
demand just give us your give us a little bit of sense of kind of that
that dynamic there thanks
Sure, great question. As we look into
sure great question
into Q4, we talked about this, that we are expecting about 10%.
as we look into q4 we talked about this that we are expecting about
revenue growth. We are expecting sort of high single digits.
digit here in the United States. So Q4 versus Q3.
ten percent revenue growth we are expecting sort of high single digit
Q3 from a year-over-year perspective is slightly lower.
here in the united states so q4 versus q3
do not think that's an indication of the mass probe more that we are.
from a year over year perspective is slightly lower
are laughing is very strong for onboarding from last.
i do not think that's an indication of the macro but more that we are lapping
a very strong q4 onboarding from last year
last year. When we're talking to our peak customers, a couple of our customers.
customers as we're planning for P, a couple of things, and you know, our top 30 customers.
when we're talking to our peak customers a couple of our customers as we're planning for peak a
customers drive about 35% of our peaking factor here in the United.
couple of things our top thirty customers drive about thirty five
United States. In general, they are forecasting about a
percent of our peaking factor here in the united states
in general they are forecasting about a two percent
2% average daily volume growth for peak.
that's specific to the peak period, which is sort of Black Friday through.
average daily volume growth for peak and that's specific to the peak
period which is sort of black friday
Christmas. It's important to know that we have one extra day in November.
November, so that's great for retailers and it's great for our peak demand.
through christmas it's important to note that we have one
extra day in november so that's great for retailers and it's great for our our peak demand
SMB in our small business is actually really strong.
strong as well. And so that is a bright or really pleasing.
smb our small business is actually really
strong as well and so that is a a bright spot we're really pleased to see that in
to see that in Q3, SMB grew faster.
than our large customer segment. I will admit, a big part of that is exiting.
q three smb grew faster
than our large customer segment
i will admit a big part of that is execution they are growing faster than market
execution. They are growing faster than market, but also, um, when
remarkably resilient. So as we head into peak despite the high fuel search.
but also remarkably resilient so as we head into peak
despite the high fuel surcharge the u s consumer seems resilient
surcharge, the U.S. consumer seems resilient both large and.
and small customers seem to be able to pass on the keyword to date.
both large and small customers seem to be able to pass on the fuel to date
If I can just add one more line to that, as we have seen more.
moderate volume growth, we expect a strong service fee and a strong.
if i can just add one more line to that
as we have seen moderate volume growth we expect a strong service peak
and a strong profit peak
strong profit beak. Thank you.
thank you
the next question is from david vernon with
next question is from David Vernon with Bernstein, please go ahead.
please go ahead
Hey, good afternoon, team Ross.
hey good afternoon
wanted to ask you about the domestic margins. Obviously, a little bit of headwind from fuel and some of the variables.
raj i wanted to ask you about the domestic margins obviously you got a little bit of headwind
stuff Claude had mentioned. But as you kind of step back and look at the progress.
on network 2.0 relative to a market word.
fuel and some of the variable stuff claude had mentioned but as you kind of step back and look at the progress
on network two dot o relative to
where yields are pretty good, volumes are okay. Are you worried?
where you want to be in terms of the rate of change and domestic margins as we end the year?
a market where where yields are pretty good volume is okay
are you where you want to be in terms of the rate of change in domestic
the year, and that is you think about that final 35%. Can you give us some.
margins as we end the year and then as you think about that final thirty five percent
some sense for when that closes or what are the factors that help?
can you give us some sense for when that closes or what are the
you to get that last chunk of the network switched over?
and whether there's any back-end savings around the whole network. 2.0 effort in 2017.
factors that help you to get that last chunk of the network
switched over and whether there's any back end savings around the whole network to that o effort
we should be thinking about.
twenty seven we should be thinking about
you, David. Yes, I'm very excited in what the progress that we.
thank you david yes i'm very excited and
we are making on network 2.0 is just one of the most incredible.
with the progress that we are making on network two point zero it's just one of the most
accomplishments and the execution that I have seen.
incredible accomplishments and execution that i have seen
recent history in this company. And the answer.
in recent history in this company
your top line question, 100% we are convinced that.
to answer your top line question one hundred percent we are convinced that
convinced that we are going to improve our U.S. domain.
domestic margins in 27 and then on beyond.
we are going to improve our u s domestic margins
in 'twenty seven and then on beyond and we are seeing some
And we are seeing some temporary factors that we are now dealing with.
temporary factors that we are now dealing with
specifically towards network two point zero
Specifically towards network 2.0, we made really good progress.
we have made really good progress we've done obviously finished canada we already
progress. You know, we're done obviously finished Canada, which we already talked to you about, the finished
large US metro markets like Dallas, San Francisco.
talked to you about we finished large us metro markets
like dallas san francisco
and most recently
and most recently, Phoenix and Washington DC.
In the next phase, we will tackle after Peak or Los Angeles.
phoenix and washington dc in the next
phase we'll tackle after peak or los angeles
Charlotte, and then Oklahoma City. So as we enter peak,
charlotte and then oklahoma city so
with 65% of our illegible offspring ADV, right?
as we enter peak
with sixty five percent of our eligible off peak adv running to the network
running to the network auto model. That'll be a new thing for that. So we are.
excited to see how that plays out. We have close more than 260.
good auto model that will be a new thing for fedex so we are excited to see how that plays out
we have closed more than two sixty facilities
260 facilities and would have optimized nearly 600 and
640 stations, that's why we've done it, we've done it already.
and would have optimized nearly six
thirty stations as we've it already
So we are very excited about the progress we're making in the
program strong execution. We're targeting a billion dollars.
we are very excited about the progress we're making that prop two point zero
strong execution
dollars of savings in 26 and
we're targeting one billion dollars of savings in twenty six
accumulated two billion by 27. This will have a strong.
and cumulative two billion dollars by 'twenty seven
you know, good strong opportunity to go to improve my.
this will have a strong opportunity to fully
margins in U.S. domestic business in 27, and then ongoing.
to improve margins in u s domestic business in twenty
ongoing from there. Thank you.
seven and then ongoing from there thank you
The next question is from Jonathan Chappelle with Evercore ISI.
the next question is
from jonathan chappell with evercore isi please go ahead
please go ahead. Thank you. Good evening.
Raj, obviously, a big focus on free cash flow, and I'm sure everybody wants.
thank you good evening raj obviously a big
you to use all of it to buy that stock. But you made a lot of
focus on free cash flow and i'm sure everybody wants you to use all of it to buy back stock
transitions here between the spin and then in post, and now selling support.
but you've made a lot of transitions here between the spin
supply chain solutions. When you look at the vertical, where you're really trying to focus.
and then in post and now selling supply chain solutions
through 2029. There are any holes in the business or areas operating.
when you look at the verticals where you're really trying to focus through twenty twenty nine
are there any holes in the business or areas of opportunity where you can invest
opportunity where you can invest some of this free cash flow?
either for volume growth or accretion, as opposed to just capital return.
some of this free cash flow either for volume growth or accretion as opposed to just
capital return
Yeah, thank you, John.
for the question. Yeah, this is obviously some of the heat concentration sets.
yes thank you john for the question yes
sets and how we deploy our capital in this environment.
this is obviously you know some of the key consideration sets in how we deploy
environment. Our portfolio is more or less believed, like the physical portfolio.
our capital in this environment
our portfolio is more or less fully intact the physical portfolio is
portfolio is more or less there. We have targeted two things here and there.
that might add to it. But I think the great news for FedEx is that.
more or less there we have targeted two things here and there that might add to it but
but
we have a scaled global network already in place.
i think the great news for fedex is that we have a scaled global network
place. And we have the physical and the digital intelligence that's in.
already in place and we have the physical and the digital intelligence
increasingly more and more valuable in this one, in a very dynamic.
that's increasingly more and more valuable in this in a very dynamic
environment
dynamic environment. So, yes, there may be some things here and there that we need to.
to close off, but our portfolio is largely complete and it's pretty fun.
so yes there may be some things here and there that we need to close off but our
the ones that you're targeting. Whether it's healthcare, automotive, data center.
portfolio is largely complete and especially for the ones that we're targeting
AI data center business. Earth space defense.
whether it's healthcare automotive data center ai ai data center business
I think the fundamental is to have a strong physical network in place, which you already have.
aerospace defense i think the fundamental is to have a strong physical network in place which
we already have
The next question is from Jordan.
Ellager with Goldman Sachs. Please go ahead.
the next question is from jordan alliger with goldman sachs
please go ahead
yes hi
hi. So appreciate all the comments.
comments on the domestic margin and the improvement for 2027.
so appreciate all the comments on the domestic margin and the
improvement for twenty twenty seven but
2027, but I don't know if you could help sort of pull it all together and.
don't know if you could help sort of pull it all together and
talk about when that inflection might come. I mean, is that like?
talk about when that inflection
might come i mean that like a first half a second half event as some of these costs
like a first half, a second half event? Do some of these cots roll off.
And I apologize. I don't know if you mentioned sort of high-level.
roll off
Is there another sort of step upcoming on the international front given the
and i apologize i don't know if you mentioned sort of high level
the strong results this quarter fence.
is there another sort of step up coming on the international front
given the strong results this quarter thanks
i'll start with that no we
I'll start with that. No, we absolutely just like international.
margin to expand in Q4 year over year, and what expect international margins.
absolutely just like we expect international margin to expand in q4 year over year
margin to absolutely improve across TY27.
expect international margin to absolutely improve across cy twenty seven
We're in the middle of our planning stages right now, and so I'm not going to give you the timing.
we're in the middle of our planning stages right now and so i'm not going to give you the
for CWAT 27, but look forward to discussing that with you.
on our keyframe call.
timing for cy twenty seven but look forward to discussing that with you
on our q4 call
the next question is from
The next question is from Tom Waterwitz with UBS, please go ahead.
ahead. Yeah, good afternoon, and
tom wadewitz with ubs please go ahead
yes good afternoon and nice
nice to see the continued momentum on the price and quality of business.
business. Um, what were they to ask? I think it's for Claude, or maybe Rosh 2.
to see the continued momentum in the price and quality of business
but you know, we're seeing kind of a broader
i wanted to ask i think it's for claude or maybe raj too but
we're seeing kind of a broader
unfortunately thematic cost pressure environment and transport right.
unfortunately thematic
it's most pronounced in truckload, but you know, you see driver, I mean, you see both.
cost pressure environment in transport right i think it's most pronounced in truckload but
brokered too, right? Like, insurance costs going up a lot. Um, I think.
you see driver i mean you see brokerage too right like insurance costs going up a lot
driver pay going up a lot. You know, you identified that is a pressure in your.
i think driver pay going up a lot you
summer line haul. How much do you think that that?
identified that is a pressure in your some of your line haul
that kind of continues? And I guess we're.
how much do you think that that kind of
continues and
i guess within your line haul drivers if they're contractors
within your line hall drivers with their contractors.
i mean there's still those contractors still have to hire
I mean, they're still, those contractors still have to hire drivers.
right? That are doing you know line haul. So I'm just wondering, is that?
that something that you have confidence? It's kind of in.
drivers right that are doing line hauls
i'm just wondering is that something that
you have confidence is kind of
inflation decreases, or is this more like hey, it.
inflation decreases or is this more like
it's just kind of structural. We got to deal with this and you know, elevated inflation rate.
hey it's just kind of structural we got to deal with this and
elevated inflation rate continues so we just got to keep getting a lot of rate
rate continues, so we just got to keep getting a lot of rate. So I guess Broad Broad.
broader thoughts on that, you know, because it does seem semantic across the industry.
so i guess broader thoughts on that just because it does seem thematic across the industry
Well, let me start and then.
well me start and
have called Wayne After that at the high level here.
here, when there's tightening in capacity, we go.
i'll have claude weigh in after that at a high at the at the high level here
of reduction in the driver's capacity, it's actually going to be good.
when there's tightening in capacity because of
good for our industry when it's all said and done. It's a matter of timing.
in driver capacity it's actually going to be good
for our industry when it's all said and done it's a matter of timing
And, you know, we experienced these incremental costs.
cost pressures, and as mostly, as God pointed out, 10% of the
we experienced these
incremental cost pressures and especially as
todd pointed out ten percent
capacity is what we're really talking about. But we have levels.
to pull here. Whether it is, you know, how we balance out.
of the capacity is what we are really talking about we have levers to pull
here whether it is how we balance out over time
over time the use of this capacity.
the use of this capacity or
how we start to incorporate these costs into the pricing.
how we start to incorporate these cost
pricing models, which will then reflect into the pricing and revenue quality initiatives.
So I think it'll start to at a highest level.
into the pricing models which will then reflect into the pricing and revenue quality initiatives
level, you know, having shorter capacity is.
so i think it'll start to at the highest level
you know having
you know, smaller capacity is good for the industry and revenue quality.
shorter capacity or smaller capacity is good for the industry
revenue quality will match that so with that i'll just turn it over to
quality will match that. So, with that, I'll just turn it over to Claire.
I appreciate it, Raj. And that's the key point there that over time.
claude no i appreciate it raj and i would ask a key point there that over time
this is helpful for us and we'll manage to this. And the good thing is, we'll have both commercial.
commercial and operational levers to manage the sound. We're confident we can do that.
this is helpful for us and we'll manage to this and the good thing is we'll have both commercial and
operational levers to manage this down and we're confident we can do that
do that. The next question is from Brian.
Brandon Oglinsky with bar clays. Please go ahead.
the next question is from brandon oglenski with barclays
please go ahead
evening, thanks for taking the question. I want to come back to the B2B subjects because.
hi good evening thanks for taking the question i want to come back to
I guess if we listen to the conference call yesterday, your main competitor.
the b2b subjects because i guess if we listen to the conference call yesterday your main competitor
a focus of them focusing on premium verticals and B2B growth. So I guess.
guess how do you rate three? And I know we spoke about this on the pricing side, but.
that's also a focus of them focusing on premium verticals and b two b growth so
i guess how do you rate pre and i know we spoke about this on the pricing side but just
but just generally, you know, B2B competition, especially in the domestic U.S. market.
market, looking into 2027. Thank you.
generally b2b competition especially in the domestic u s market looking into
twenty twenty seven thank you
Yeah, so thank you for the question.
I think first and foremost, we're excited about the opportunity. It's a
yeah so thank you for the question
i think first and foremost we're excited about the
It's a really large total market when we look at the market that we're operating in.
it's more than a $600 billion market globally. We've targeted.
opportunity it's a really large total market when we look at the market that we're operating in
targeted four key verticals that represent over 130 cylinders.
more than a six hundred billion dollars market globally
And right now, we're really excited, as Ross mentioned earlier.
we've targeted four key verticals that represent over one hundred and thirty billion
dollars and right now we're really excited as raj mentioned earlier about
earlier, about our position in this market and our visit value problem.
proposition. In Q3, we saw strength.
our position in this market and our existing value proposition
around the world. 50% of our revenue is D to B.
in q three we saw strength around the world
B. In the Q3, we grew more than 60%.
sixty percent of our revenue is b two b in the
60% of the revenue was continued to be in B2B, and we saw strength and
q three we grew more than sixty percent of the revenue was
execution across the board. We had double-digit health care growth.
continued to be in b2b and we saw strength and execution across the board
growth. In particular, as you guys know, we have long been the market leader and mental.
we had double digit healthcare growth in particular as you guys know we have
tech here in the United States. We've gone after pharma, and it's growing double.
long been the market leader in med tech here in the united states we've gone after pharma
digit. So the team is very focused in executing there.
AI and a data center perspective, we are the market lead. I would have
and it's growing double digit so the team is very focused and
executing there from an ai and a data center perspective we are the market leader
Asia on the powerful side, and we're leveraging those relationships.
The strength in AI and data center vertical with the fastest growing.
out of asia on the parcel side and we're leveraging those relationships
the strength in ai and data center vertical was the fastest growing
segment that we had. We've also seen a resurgent in automotive as we just
talked about a year ago, we said we needed to do better there and the
segment that we had we've also seen a resurgence in automotive
team performed and got high single digits in automotive, which is tough to do.
as we just talked about a year ago we said we needed to do better there and the
team performed and got high single digits in automotive which is
do right now, because it is not one of the building markets that we are.
are seeing right now. So I think it's a couple things. We've got a unique
tough to do right now because it is not one of the booming
value proposition when we compete against anyone outside of the top.
markets that we are seeing right now i think at the
couple of things we've got a unique value proposition
two integrators, we have our end network that they simply don't have.
when we compete against anyone outside of the top two integrators we have our end to end network
We have a brand that opens doors and needs security, which matters for all of the
that they simply don't have we have a brand that opens doors and means
verbicals. It is definitely matters for AIDC.
security which matters for all of these verticals it is
and we have an organization that is customer and solutional.
especially matters for aidc and we have an
organization that is customer and solution oriented that is just
oriented. That is just in our DNA, and it shows up time and time.
time again. And I think the results that we just put on the board here globally.
in our dna and it shows up time and time again
and also it's important to note we did go B to B here in the US from commercial.
and i think the results that we just put on the board here globally and also it's important to note
commercial is up, priority is up, so um strong at the
we did grow b2b here in the u s ground commercial is up
execution, and I think you can expect it next quarter and right through CY27.
priority is up so strong execution and i think you can expect it next
quarter and right through cy twenty seven
This concludes our question and answer.
this concludes our question and answer session
answer session. I would like to turn the conference back over to Raju Manium.
for any closing of marks. Well, thank you all.
i would like to turn the conference back over to raj subramaniam for any closing remarks
operator. In closing, our Q3 results demonstrate our ability.
well thank you operator
ability to deliver strong financial results while supporting our customers.
in closing our q3 results demonstrate our ability to deliver
strong financial results while supporting our customers
With the peak season ahead of us, I want to thank Team FedEx for their.
relentless hard work and dedication. The momentum we have established.
with the peak season ahead of us i want to thank team fedex
positions as well to deliver for our customers, create value for our stock.
for their relentless hard work and dedication
the momentum we have established positions us well to deliver for our customers
stockholders and generate significant free cash flow both this year and beyond.
create value for our stockholders and generate significant free cash
Thank you very much. The conference is now concluded.
flow both this year and beyond thank you very much
concluded. Thank you for attending today's presentation. You may now disconnect.
the conference has now concluded
thank you for attending today's presentation
disconnect.
you may now disconnect
I don't think you'd be back yet.
tongue back and
once I do that. I told you.
that.
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