FedEx (FDX) Q4 2025 Earnings Call Transcript

Image source: The Motley Fool

EDTCALL PARTICIPANTSPresident and Chief Executive Officer — Raj SubramaniamExecutive Vice President and Chief Customer Officer — Brie CarereExecutive Vice President and Chief Financial Officer — John DietrichVice President, Investor Relations — Jeni HollanderNeed a quote from one of our analysts. [ tected]RISKSManagement cited a volatile global demand environment and stated, "The global demand environment remains volatile," creating uncertainty in forecasting and operations

FedEx reported revenue and margin headwinds from "the expiration of our US Postal Service contract," which included a $120 million headwind in Q4 and is expected to impact the first four months of FY 2026

Tariff changes created a "material headwind on our Asia to US lane, largely driven by China," accounting for a $170 million adjusted operating income headwind in Q1 FY2026

Industrial economy weakness persisted, pressuring higher-margin B2B volumes and contributing to the year-over-year decline in FedEx Freight operating income and margin in Q4

International Trade Lane Impact: China to U

Lane comprises apximately 2. 5% of consolidated revenue and was cited as "our most fitable intercontinental lane," but was materially affected by increased tariffs

Postal Service contract expiration and trade disruption in Q1

Marking the fifth consecutive annual increase

Upcoming Freight Spin-Off: gressing on plans to separate FedEx Freight, with a targeted completion in June 2026, and executive leadership team appointments announced

SUMMARYFedEx management highlighted the completion of major cost reduction initiatives in FY2025, with capital discipline and plans for further transformation savings in FY2026

Expansion of Network 2. 0 remained on target, optimizing station operations and supporting ductivity imvements

International revenue, particularly from China to the U

S, was significantly impacted by trade policy changes in Q4, resulting in nounced near-term headwinds

Management reiterated a focus on pricing discipline and segment mix, including continued gress in the high-margin healthcare

Management stated, "As circumstances and the needs of our customers change, driving greater efficiency and a better customer experience," underscoring the flexible network’s role in responding to dynamic global conditions

Executive ary described a continued inability to forecast full-year results due to "uncertainty" around tariffs and trade dynamics, with jections instead limited to Q1 and awaiting imved market clarity

INDUSTRY GLOSSARYNetwork 2. 0: FedEx's strategic initiative to integrate and optimize its package pickup, dery, and ing infrastructure to drive cost efficiency and service imvements

Drive: FedEx’s enterprise-wide structural cost reduction gram targeting operational efficiencies and sustained margin expansion across divisions

Tricolor strategy: FedEx's apach to network flexibility, enabling rapid capacity and routing adjustments across geographic lanes to match shifting demand

Adjusted free cash flow: Net cash generated from operating activities minus capital expenditures, adjusted for certain one-time items as defined by management

B2B: -to- shipping segment, generally commanding higher margins than consumer shipments

Regulatory vision allowing low-value imports to enter duty-free, with recent policy changes affecting trans-Pacific e-commerce shipments

Yield: Average revenue per package or shipment, used to evaluate pricing trends and revenue quality

Full Conference Call TranscriptRaj Subramaniam: Thank you, operator

Before we begin, I want to take a few minutes to honor someone who meant a great deal to this company, the community, his beloved family, and to me personally

It feels strange to be here with you all so soon after his sudden passing

And it is difficult to put into words the tremendous loss felt by all who knew Frederick W

But Fred was a man grounded by a mission

And he would tell us to stay focused on the and keep marching forward

And so we will do just that

But first, I wanted to a few thoughts

Fred was more than a leader

He was a visionary who revolutionized the dery industry

He was a man who led with integrity and inspired others

His belief in people, his relentless pursuit of excellence, and his commitment to connect people and possibilities built one of the world's most successful companies over the last five decades

And his legacy will be felt for decades to come

On a personal note, I will miss the strategic counsel, impeccable character, and sharp wit

He taught me that leadership is service and not titles

He challenged me to think bigger, act bolder, and always, always put our people and our customers at the center of everything we do

I feel tremendously fortunate to have spent thirty-four years learning from one of the most brilliant minds in our country's history

Please join me in extending heartfelt condolences to the entire Smith family during this difficult time

As we move forward, we will honor his legacy by continuing to build the company he loved with the same passion and purpose he inspired in us all

Now, consistent with our succession plan, yesterday, the board elected Brad Martin as the chairman of the board of FedEx Corporation

Brad is a highly regarded leader and strategic thinker who is intimately familiar with the, having previously served as our vice chairman

With that, I'm going to turn the call over to Jeni Hollander

Jeni Hollander: Thanks, Raj

Good afternoon, and welcome to FedEx Corporation's fourth quarter earnings conference call

The fourth quarter earnings release and stat book are on our website at investors

This call and the accompanying slides are being ed from our website

During our Q&A session, callers will be limited to one question to allow us to accommodate all those who would to participate

Such forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements

For additional information on these factors, please refer to our press releases and filings with the SEC

Today's presentation also includes certain non-GAAP financial measures

Please refer to the Investor Relations portion of our website at fedex

Com for a reconciliation of the non-GAAP financial measures discussed on this call to the most directly comparable GAAP measures

Joining us on the call today are Raj Subramaniam, President and CEO; Brie Carere, Executive Vice President and Chief Customer Officer; and John Dietrich, Executive Vice President and CFO

And now I will turn the call back over to Raj

Raj Subramaniam: Thank you, Jeni

I want to start by commending our team for their strong efforts and execution

We dered a solid finish to FY '25 with another quarter of adjusted operating income growth and adjusted operating margin expansion, despite a challenging demand environment

This performance reflects the gress we have made on our strategic transformation, which continues to position FedEx for long-term value creation

We advanced Network 2. 0 in FY '25 as we began optimizing larger, more densely populated

We achieved all of this in the face of major headwinds, including the expiration of our US Postal Service contract, two fewer operating days, and volatility and uncertainty related to global trade policies

Against this dynamic backdrop, I'm very ud of our ability to der on our targets, adapt our network to changing trade flows, and vide excellent service for our customers

Now turning to our consolidated Q4 results

We grew our drive savings sequentially and achieved our drive cost reductions target in this quarter

At FedEx Corporation, our results demonstrate the operational leverage we have built into our through Drive

We achieved this result in a weak demand environment, growth largely driven by our deferred services

Our performance demonstrates the flexibility of our network, and I'm confident in the operating results we can der when the industrial economy recovers

Consistent with the trends over the last several quarters, our higher margin B2B volumes remain pressured, which affected both FedEx Corporation and freight results

That said, we are encouraged by the sequential imvement at FedEx Freight and our ability to tect fitability with an operating margin of 20

The trade-related events of the fourth quarter showcased our ability to leverage both the scale and the flexibility of our unrivaled global network, supported by insights from the vast amounts of data we collect

We are at the center of a global trade ecosystem

This uniquely positions us to be a valuable partner to our customers as they navigate shifting demand trends, evaluate the impact of tariffs on their es, and adjust their supply chains accordingly

And importantly, our Tricolor strategy enables us to adapt our own network faster than ever before

As circumstances and the needs of our customers change, driving greater efficiency and a better customer experience

For example, in the fourth quarter, we flexed our network to match the demand environment as trade flows shifted

We then continued to adjust the capacity as needed

We have been introducing other network changes in Asia, allowing us to consolidate from multiple points into a centralized gateway

We recently added a direct flight from Singapore to the US, enabling us to more efficiently capture increased demand out of Southeast Asia

We continue to evaluate trade patterns and are prepared to alter our routes and capacity commitments should demand shift, with a focus on Asia to Europe and Asia to Latin America

In addition to rapidly adjusting our physical network, our team has done a remarkable job working closely with our customers and helping them navigate increasing operational complexities

We continue to apply our digital platform-based solutions to effectively address key pain points amid changing global trade policies

These solutions support a wide range of stakeholders, importers, exporters, brokers, and regulators

And they are tightly integrated with our customers' existing workflows, ensuring that critical trade and tariff-related work can occur seamlessly and efficiently

As you are all aware, there's a lot happening outside of FedEx

Trade policies are evolving, and trade patterns are changing

What's truly remarkable is the significant way we have leveraged our nological capabilities and cesses to navigate these complexities and operate more efficiently for our customers. 0 is the next leg of our structural transformation, and it is well under.