Image source: The Motley Fool. DATETuesday, June 24, 2025, at 5 p.
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.
TAKEAWAYSConsolidated Revenue: Increased 1% year over year in Q4, driven mainly by growth in deferred services and U. Domestic parcels.
Adjusted Operating Income: Adjusted operating income rose 8% year over year in Q4, with a $147 million increase in adjusted operating income in Q4 and a 60 basis point expansion in adjusted operating margin in Q4 (adjusted, non-GAAP).
Drive Structural Cost Reduction: Achieved $2. 2 billion of savings in FY 2025, meeting the two-year $4 billion cumulative cost reduction target versus the FY2023 baseline.
Capital Allocation: Returned $4. 3 billion in cash to stockholders in FY 2025, exceeding the prior commitment of $3. 8 billion, with $3 billion in repurchases. CapEx Spending: Reduced by $1.
1 billion to $4. 1 billion in FY 2025 versus $5. 2 billion in FY 2024, representing the lowest capital spending in over a decade, and CapEx as a percentage of revenue was 4.
FedEx Freight Segment: Operating income fell by $30 million, and operating margin declined 40 basis points in Q4 despite sequential volume imvement and pricing discipline.
0 Optimization: By June FY2025, 2. 5 million average daily volume cessed through optimized stations, with 100 stations closed and 290 integrated under the new model as of the end of FY2025.
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.
Q1 Revenue Outlook: jected consolidated revenue growth range of flat to 2% in Q1 FY2026, with a $570 million revenue headwind from the U. Postal Service contract expiration and trade disruption in Q1.
Transformation Savings Guidance: Management expects $1 billion of transformation-related savings in FY2026, with a $200 million contribution in Q1.
Healthcare Segment: Achieved $9 billion in healthcare-related revenue for FY 2025 and became the first global integrator to receive a key ground handling pharma certification in Q4.
Dividend and holder Returns: Increased annual dividend by 5%. Marking the fifth consecutive annual increase.
Adjusted Free Cash Flow Conversion: Achieved nearly 90% adjusted free cash flow conversion from net income due to lower capital intensity.
Non-Cash Impairment Charge: Recorded a $21 million non-cash impairment charge related to the retirement of 12 aircraft and eight engines as part of the fleet modernization strategy in Q4.
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.
Strategic plans advanced for a FedEx Freight spin-off, with executive appointments and infrastructure separation milestones outlined for completion by mid-2026.
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.
The company emphasized that 85% of its FY 2025 CapEx was related to the modernization of its aircraft and vehicle fleets, as well as optimization and automation of its network, signaling an investment focus on ductivity rather than capacity expansion.
FedEx detailed a plan to further reduce aircraft CapEx to apximately $1 billion annually for several years, beginning in FY2026, maintaining a lined and modernized fleet.
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.
Raj Subramaniam confirmed the company will exit June FY2025 with roughly 2. 5 million average daily volume flowing through Network 2.
0 optimized stations, marking measurable gress on network integration objectives. 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. De minimis: U.
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. Hundredweight (CWT): Unit of measure (100 pounds) for pricing shipments in the freight industry.
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.
Certain statements in this conference call may be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.
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. In FY 2025, we dered on our $2.
2 billion drive structural cost reduction commitment. This enabled us to achieve our two-year $4 billion drive target compared to the FY '23 baseline. We advanced Network 2.
0 in FY '25 as we began optimizing larger, more densely populated. We continued to lower our capital intensity, and we returned $4. 3 billion in cash to stockholders.
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. Revenue was up 1% year over year. We grew our drive savings sequentially and achieved our drive cost reductions target in this quarter.
This enabled us to grow adjusted operating income by 8% and expand adjusted operating margin by 60 basis points.
At FedEx Corporation, our results demonstrate the operational leverage we have built into our through Drive. On a 1% increase in revenue, we grew adjusted operating income by 9%.
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. We connect 99% of the world's commerce. We move $2 trillion worth of goods every year.
We connect 3 million shippers to more than 225 million consumers. As the world changes and supply chains evolve, we benefit from our presence in over 220 countries and territories.
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 reduced capacity on our Asia to Americas lane by more than 35% in May compared to April. This included reducing our third-party or wholesale capacity by 50%.
We then continued to adjust the capacity as needed. As demand trends evolved throughout the month, we exited May with a net capacity of 20% versus April.
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.